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Baker Botts Again Posts Weaker Revenue, Profits, on Fewer Contingency Fees

Baker Botts. Diego M. Radzinschi/ALM

Baker Botts saw its revenue and profitability take sizable hits in 2018, the firm's second consecutive year of declining financials.

But Andrew Baker, the firm's Houston-based managing partner who will cede that position in a month, said, "the numbers don't tell the story."

Gross revenue for Baker Botts dropped 7.3 percent to $678.2 million in 2018 compared with $731.8 million in 2017. And revenue per lawyer (RPL) was down 6.2 percent to $958,000, compared with $1.021 million the year before.

Profits per equity partner (PEP) came in at $1.66 million, a 9.6 percent dip from $1.84 million the year before. Net income was $315.9 million, down 4.1 percent compared with $329.3 million in 2017.

Baker said the firm's 2018 financials appear poor because they are compared with 2017, when the firm had significant contingency fee revenue. And the declines in 2017, he said, came after the firm saw record-setting contingency fee revenue in 2016.

"The lion's share, the huge majority of it was the absence of contingency fees," Baker said about the Houston-based firm's numbers in 2018. "Our partners got unprecedented amounts in '17 and '16. That didn't repeat in 2018. It doesn't mean our business is weaker by its absence," he said.

Baker said that if "tens of millions" of contingency fees are taken out of the 2017 numbers, 2018 would be a "just below flat" year in comparison. He said 2018 gross revenue would have been slightly less than flat, and PEP would have been up by 1.5-to-2 percent, instead of down by 9.6 percent.

Baker also said 2018 revenue was impacted by a large amount of uncollected receivables that carried over into this year. He said collections in January were "the best in the 179-year-old history of the firm," and February was excellent, too.

Baker said Baker Botts' revenue in technology and energy were roughly equivalent in 2018. He said work surrounding the technology, media and telecom sector poured in, and the intellectual property and IP litigation practices in particular were busy. The firm's environmental lawyers were very busy, he said.

Corporate work was up, too, Baker said, although the firm experienced some weakness in energy capital markets. Additionally, the firm's antitrust practice, which is global, had a very strong year, he said.

Baker Botts was slightly smaller in 2018 than 2017, with 708 lawyers in 2018 on a full-time equivalent basis, down 1.3 percent when compared with 717 the year before. But the firm had 6.1 percent more equity partners, 190 on an FTE basis, compared with 179 the year before.

Baker said the firm is purposely increasing its equity partner ranks.

"We are doing it as a sign of confidence," he said.

In 2018, Baker Botts added 19 lateral partners and promoted 12 lawyers to partner, according to Baker. He said 60 percent of the new partners are located outside of Texas, including 19 on the East and West Coasts, which indicates the firm's investment in the future. Among the lateral hires were lawyers in Brussels, London, Riyadh, New York and Washington, D.C., as well as Houston.

On April 1, Palo Alto partner John Martin will succeed Baker, who faces mandatory retirement at the end of the year.

Baker Botts has long differentiated itself as a technology and energy firm and will continue to do so, Martin said in a recent interview. The firm will continue to build strength in Texas, he said, even as it targets growth in London and on the East and West coasts.


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