穆迪 (MCO) 2011 Q1 法說會逐字稿

Good day, and welcome, ladies and gentlemen, to the Moody's Corporation first-quarter 2011 earnings conference call.

At this time I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode.

At the request of the Company we will open the conference up for questions and answers following the presentation.

I will now turn the conference over to Miss Salli Schwartz, Investor Relations for Moody's.

Please go ahead.

Thank you.

Good morning, everyone, and thanks for joining us on this teleconference to discuss Moody's first-quarter results for 2011.

I am Salli Schwartz, Vice President of Investor Relations.

Moody's released its results for the first quarter of 2011 this morning.

The earnings press release and a presentation to accompany this teleconference are both available on our website at IR.Moodys.com.

Ray McDaniel, Chairman and Chief Executive Officer of Moody's Corporation, will lead this morning's conference call.

Also making prepared remarks on the call this morning is Linda Huber, Chief Financial Officer of Moody's Corporation.

Before we begin I call your attention to the Safe Harbor language which can be found toward the end of our earnings release.

Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

In accordance with the Act I also direct your attention to the Management's Discussion and Analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31, 2010 and in other SEC filings made by the Company which are available on our website and on the Securities and Exchange Commission's website.

These together with the Safe Harbor statement set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements.

I would also like to point out that members of the media may be on the call this morning in a listen-only mode.

I'll now turn the call over to Ray McDaniel.

Thanks, Salli.

Good morning and thank you, everyone, for joining today's call.

I'll begin our remarks by summarizing Moody's first-quarter 2011 results.

Linda will follow with additional financial detail and operating highlights.

I will then speak to recent regulatory developments and finish with comments on our outlook for 2011.

After our prepared remarks we'll be happy to respond to your questions.

First-quarter revenue of $577 million increased 21% over the prior year reflecting strong corporate debt issuance and increased structured finance ratings activity, supporting growth at Moody's investor service and continued solid performance for Moody's analytics.

All reporting units of both MIS and MA grew in the first quarter of 2011 from the same prior year period.

Operating income for the first quarter was $250 million, 27% above the prior year period.

Diluted earnings per share for the quarter were $0.67, an increase of 43% year over year.

We are raising our full-year 2011 EPS guidance to a range of $2.22 to $2.32 from the prior range of $2.12 to $2.22 based on strong first-quarter performance.

Our expectations for market conditions for the remainder of the year are generally unchanged from our February guidance.

I will now turn the call over to Linda to provide further commentary on our results and other updates.

Thanks, Ray.

I'll begin with revenue at the Company level.

As Ray mentioned, Moody's total revenue for the quarter increased 21% to $577 million.

US first-quarter revenue increased 18% to $301 million while revenue outside the US grew 24% to $276 million and represented 48% of Moody's total revenue.

Recurring revenue of $294 million represented 51% of the total compared to 59% in the prior year period.

Looking at each of our business, Moody's Investors Service revenue for the quarter was $413 million, a 23% increase year over year.

US revenue was up 22% over the prior year period, while outside the US revenue grew 25% and represented 44% of total ratings revenue.

Global corporate finance revenue in the first quarter increased 44% from a year ago to $182 million.

Revenue grew 52% in the US while outside the US revenue increased 31% year over year.

Growth was driven by strong issuance activity, particularly in the US and European investment grade and high-yield markets.

Global structured finance revenue for the first quarter was $89 million, 25% above the prior year period.

In the US revenue increased 11% year over year with improved issuance in commercial real estate finance partially offset by declines in asset-backed securities.

Non-US structured finance revenue rose 39% permanently driven by demand for rating securitizations placed with government-sponsored facilities in Europe and increased covered bond issuance.

Global financial institutions revenue of $77 increased 1% from the same quarter of 2010 primarily due to higher levels of insurance sector issuance abroad.

US financial institutions revenue declined 2% while non-US revenue increased 3%.

Global revenue for public project and infrastructure finance business grew by 5% year over year to $64 million.

Revenue declined 10% in the US reflecting weakness in public and project finance issuance with the expiration of the Build America bond program and municipal budgetary pressures.

Non-US revenue increased 35% primarily driven by growth in infrastructure finance.

And turning now to Moody's Analytics, global revenue for Moody's Analytics of $164 million was up 17% from the first quarter of 2010.

US revenue grew by 9% year-over-year to $71 million.

Non-US revenue increased 23% to $93 million and represented 57% of total Analytics revenue.

Globally, revenue for research data and Analytics of $110 million increased by 5% from the prior year period and represented about 67% of total MA revenue.

We are seeing continued demand for products across our portfolio as conditions in the financial industry improve.

Revenue from risk management software of $40 million grew 19% helped by the early completion of transactions that were expected to be realized later this year.

Due to the variable nature of project timing and the concentration of revenue and a relatively small number of engagements, risk management software revenue remained subject to significant short-term volatility.

Professional services revenue increased more than fourfold to $15 million reflecting the acquisition of CSI Global Education in November 2010 as well as much stronger results in the base business.

Turning now to expenses -- Moody's first-quarter expenses were $327 million, an increase of 17% compared to the first quarter 2010.

This increase was primarily due to increased headcount from the prior year period, higher accruals for incentive compensation reflecting the stronger 2011 full-year outlook and ongoing technology spending.

Moody's reported operating margin for the quarter was 43.3% compared to 41.3% in the first quarter of 2010.

Our effective tax rate for the quarter was 33.2% compared with 37.2% for the prior year period.

The difference was primarily due to a higher portion of taxable income generated internationally in lower tax jurisdictions and a reduction of US state income taxes.

Now I'll provide an update on capital allocation and stock buybacks.

Moody's increased its quarterly dividend on April 26 by 22% to $0.14 per share, up from $0.115 per share of common stock.

During first quarter of 2011 Moody's repurchased 4.3 million shares at a total cost of $128 million for an average price of less than $30 per share.

Moody's also issued 1.4 million shares under employee stock-based compensation plans.

Outstanding shares as of March 31, 2011 totaled 227.8 million shares representing a 4% decline from year earlier.

As of March 31, 2011 Moody's had $1.1 billion of share repurchase authority remaining under its current program.

At quarter end Moody's had $1.2 billion of outstanding debt with $1 billion of additional debt capacity available under our revolving credit facility.

Cash and cash equivalents were $720 million, an increase of $223 million from the prior year period.

Approximately 70% number cash holdings are maintained outside the US.

We remain committed to using our strong cash flow to create value for shareholders while maintaining sufficient liquidity.

We expect to continue share repurchase at modest levels subject to available cash flow, market conditions and other ongoing capital allocation decisions.

And with that I'll turn it back over to Ray.

thanks, Linda.

I'll continue with an update on legislative and regulatory developments.

First in the US, the principal regulatory activities for 2011 affecting Moody's Investors Service will be SEC rule making under the Dodd-Frank Act.

The majority rules are now expected to be proposed through July 2011 on matters that include reporting of internal controls, transparency of ratings performance and references to credit ratings and statutes, regulations and rules.

Adoption of the proposed set of rules is expected during the second half of 2011.

While new rules entail various changes in our rating agency processes and operations and require us to adapt our business, we will not alter our fundamental business objective to provide the product highest-quality credit opinions, research and analysis.

Turning to Europe, the transfer of oversight of credit rating agencies from national regulators to the newly established European Securities and Markets Authority, or ESMA, is scheduled to be effective July 2011.

We have submitted an application for registration of our EU-based entities and for authorization to endorse our non-European credit ratings so that they qualify for regulatory use by EU regulated entities.

We believe that this position will support the efficient flow of capital across national borders and best meet the current needs of all users of credit ratings.

Moody's registration process is expected to be concluded in the second quarter of 2011.

The European Commission is also scheduled to propose new rules for the rating agency industry in the third quarter of 2011 regarding matters that include competition, business models, liability and the use of ratings and regulations.

As regulatory reviews and activity occur in other jurisdictions we will continue to advocate for globally consistent approaches that align with G-20 statements and directives.

I'll conclude this morning's prepared remarks by discussing our full-year guidance.

Moody's outlook for 2011 is based on assumptions about many macroeconomic and capital market factors including interest rates, corporate profitability and business investment spending, merger and acquisition activity, consumer borrowing and securitization and the eventual withdrawal of government-sponsored economic stabilization initiatives.

There's an important degree of uncertainty surrounding these assumptions and if actual conditions differ Moody's results for the year may differ materially from our current forecast.

As mentioned earlier, we're revising our EPS guidance upward for the full year 2011 to a range of $2.22 to $2.32 reflecting strong first-quarter performance.

Our expectations for market conditions for the remainder of the year are generally unchanged from our February guidance.

Our full-year outlook assumes foreign currency translation at end of quarter exchange rates.

Our revenue expectation is for certain areas of change based on conditions specific to those businesses and geographies.

My comments highlight only those components that have been revised and we refer you to our earnings release for a full review of our 2011 guidance.

For Moody's Corporation we now expect full-year 2011 revenue to grow in the low double-digit percent range.

We do not expect earlier strength to continue at levels above our February guidance.

Full-year expenses are now projected to increase in the high-single-digit percent range.

At Moody's Investors Service we now expect global revenue growth in the low-double-digit percentage range.

In the US we now expect MIS revenue to increase in the mid- to high-single-digit percent range while non-US revenue is expected to grow in the mid- to high-teens percent range.

Corporate finance revenue is now projected to increase in the high teens percent range with ongoing activity driven by refinancing, mergers and acquisitions and other capital needs.

Structured finance revenue is now expected to grow in the mid-single-digit percent range, while revenue from financial institutions is now expected to increase in the high-single-digit percent range.

Public project and infrastructure finance revenue is now projected to grow in the mid-single-digit percent range.

For Moody's Analytics our guidance remains unchanged given the variable nature of project timing and the concentration of revenue in a relatively small number of engagements within the risk management software revenue line.

That concludes our prepared remarks.

And joining us for the question-and-answer session are Michel Madelain, the President and Chief Operating Officer of Moody's Investors Service, and Mark Almeida, President of Moody's Analytics.

We'd be pleased to take any questions you may have.

(Operator Instructions).

Michael Meltz, JPMorgan.

I have three questions for you.

Ray, the pick-up in structured in Q1, your guidance would imply a pretty big deceleration in terms of growth in I think absolute dollars throughout the year.

So can you just talk about what was special in Q1 and why that would decelerate?

And then secondly, on costs, Linda, the guidance I think still -- back in February you had talked about costs on an absolute dollar basis ramping, kind of lifting each quarter throughout the year.

Is that still expected, a kind of a smooth step up in expenses?

Yes, Michael, if you want to take that one first.

Expenses for the first quarter were $327 million and we're expecting $40 million-ish perhaps on top of that over the course of the year by the time you get to the fourth quarter.

So, yes, would ramp in an upward sloping way between now and the end of the fourth quarter.

And with respect to the first-quarter structured finance performance, Michael, you're correct, we do expect that the first quarter is going to show higher revenue than we would see for the quarters going forward the rest of the year.

And the improvement in the first quarter was primarily driven by the demand for ratings on securitizations in Europe that were being placed with government-sponsored facilities.

And so the ratings that were mandated as a result of that apply to ratings that were already outstanding in the market in part, and that contributed to the growth in the area.

That has largely been rung through the system at this point and so we would expect to revert more to a run rate like we had seen in recent quarters.

Okay.

And then the last one and I'll take Appert's question here.

Your performance was considerably better than S&P's this quarter, and it's true in the US as well as internationally -- and even though you didn't give the transaction number, I assume, on the transaction side within ratings.

What are you attributing that to or do you have a thought as to why the gap has widened somewhat?

Michael, let me take a shot at it.

We noticed that the 10-Q for McGraw-Hill was out this morning; obviously we haven't had a chance to study it, but we have a couple of thoughts on this.

For our first-quarter revenue growth for MIS, which was up $77 million, most of that -- the lion's share of that is certainly coming from corporate finance and then the rest from structured.

And we can go through that in a little bit.

The main drivers of the difference over S&P as we see it is we benefit from the fact that the ECB is looking for second ratings and, as Ray has spoken about before, that increased our structured finance business.

We'd also note that the two companies have different approaches to transaction and recurring revenue.

As you know, we're more tilted toward transaction revenue and that benefits us during a high-volume, high issuance market.

Thirdly, our pricing and mix changes were amplified by strong issuance.

So strong activity in bank loans, high yield and other places that are particularly helpful to us, and we are seeing a continued flow of new rating requests.

People looking for ratings for counter-party activities and to provide a safeguard if they're unable to borrow at attractive rates from their local banks.

So really a bunch of different reasons and I'll let Ray comment further on that.

I just would underscore Linda's comment that these are somewhat speculative on our part as we don't know exactly what all of the drivers are between ourselves and our competition.

Okay, thank you for your time.

William Bird, Lazard.

Yes, just a follow-on to Michael's question.

In particular your growth outside the US was really substantially higher than S&P, about triple the growth rate.

So you mentioned the ECB second rating as one of those factors.

Are there other factors that you think are durable that's driving that difference?

We had good growth in speculative grade ratings in Europe.

I've mentioned in some recent quarters that while the speculative grade market in Europe historically has not been material, it has been growing rapidly and is becoming a much more important component.

That may be a source of gain.

We also had strength in international project and infrastructure finance, which is a source of gain.

And on the Moody's Analytics side of the business we actually have a majority of our business outside the US and that not only benefited from good growth in the base business but we also have the CSI acquisition which contributes to international revenue.

And, Ray, could you talk a little bit about the ratings pipeline and just kind of what you're seeing right now in the business?

Sure.

As we said at a very high level, we still see generally favorable conditions in the capital markets and we expect those are going to -- those conditions are going to continue through the year.

I think pipeline reflects that across our businesses.

We certainly believe that we have seen pull forward in the corporate sector, both investment-grade and high-yield, into the first quarter of the year and that pull forward may have a dampening effect on issuance later in the year.

On the other hand, we are seeing increased merger -- debt-financed merger and acquisition activity and a broader set of reasons from issuers for issuing debt including share repurchase, business expansion activities.

So the mix of corporate issuance is becoming more diverse and we feel that's a positive and an offset to the pull forward that we saw in the first quarter.

On the structured finance side, I would characterize the pipeline as being not bad.

As I said, we don't think we're going to have the first-quarter revenue run rate through the rest of the year.

But we certainly have a reasonable pipeline of business over on that side.

And, Linda, I was wondering if I could just get the incentive comp accrual for the quarter.

Sure.

Our incentive compensation accrual for the first quarter was $29.4 million, Bill.

That included about $7.5 million of incentive compensation as a result of our raising our outlook for 2011, taking up our guidance we've done a little bit better than we had expected.

And what percent of employee cost did that represent?

That's about 13% of compensation cost.

Great, thank you.

Peter Appert, Piper Jaffray.

So, Ray, your comment on structured finance being "not bad", seems like -- maybe this is overly nuanced, but it seems like a change from what you've been saying in recent quarters.

And maybe suggesting that beyond the strength you saw in the first quarter from the stuff in Europe you are seeing some changes in the market.

Is that fair and can you expand on that?

Well I guess, Peter, it may be as much my expectations leveling out as anything else.

It's variable.

We had good growth in Europe in the first quarter and, as we've talked about, a lot of this had to do with securitizations that were going to government-sponsored enterprises.

But we also had growth in the covered bond area, for example.

And we think that is a more enduring source of growth.

The commercial real estate finance area in the first quarter was good both in the US and internationally.

CLOs, we are optimistic about the long-term prospects for CLOs.

But whether some of these asset categories are going to show good growth in 2011 at this point probably relates not only to regulatory changes that have been put in place, but also just to the economics in terms of where spreads are and whether it's the right time for, for example, CLOs and certain forms of real estate securitization to come to market.

So economic conditions are going to dictate the timing, even though we are optimistic in the longer run about some of these assets classes.

Got it.

So on that front, right, given an expectation that rates presumably are going up, spreads are going to widen.

Can you talk about how that might impact the business then over the next several quarters in the context of rising rates?

Yes, I mean we are -- I think our central case is that we do not expect rates to increase significantly in the coming quarters.

And in particular because of what we're seeing in terms of corporate performance we would expect some modest spread narrowing to continue so that absolute rates probably will not change dramatically.

So again, in terms of the conditions for 2011 we don't expect big changes driven by rates.

But I guess the question more, Ray, was when rates start to rise is that a catalyst for issuance activity or is that a constraint on issuance activity?

It should be a catalyst for issuance activity in certain areas of structured finance.

Great.

And then last thing, on the margin front, so you're up 200 plus basis points here in the first quarter, which is obviously the high end of the range you've talked about for the full year.

So I'm just wondering maybe, Linda, if you're feeling a little bit more optimistic on the prospects for margin leverage both near-term and over the next couple of years.

Peter, let me start by doing something different and correcting something that was written this morning.

We're looking at a piece written by Sloan Bohlen that indicated that we expect our full-year margins to be 46%, that is not true.

We are guiding margins 38% to 40%.

The reason, Peter, why we're at those levels, we view first quarter as potentially being the strongest margin quarter in the year.

There are two things going on.

We're expecting the revenue view this year potentially to be perhaps U-shaped, a little bit different than what we've seen in previous years.

And as I mentioned before, we see expenses ramping up over the course of the year.

So with all that considered we're at 38% to 40%.

We would hope that we'd come in at the high end, but we'll have to see how it goes.

So those two things together keep us moderated in our thoughts on what the margin outlook is for the year.

Great.

And one last thing, Linda.

So you say in the release modest share repurchase levels.

So is the first quarter modest?

And give me the definition of modest, please.

Peter, last year we did I think -- in 2010 we did $224 million, I think that's sort of how we define modest.

We saw good opportunity in the first quarter to repurchase 4.3 million shares of stock at $29.94, so we're feeling pretty good about that.

We'll have to see how conditions look and what's going on in the marketplace.

So we have some room to go and we may add a little bit to that, but I think modest is about what we did last year.

Got it.

Thank you.

Craig Huber, Access 342.

Good morning.

Linda, can you break down for us -- like I typically like to ask you, the percent breakdown between transaction and non-transaction across your four broad categories?

That's my first question.

Sure.

Starting with structured, Craig, for first quarter 2011, transactions were 54% of fees where relationship was 46%.

Now interestingly that's an absolute reverse of what we saw in the fourth quarter 2010 where it was backwards -- transactions were 46%, relationship 54%.

So as Ray commented, you're seeing the pickup in activity and structured finance.

Looking at corporate, 76% transaction, 24% relationship; financial institutions, 43% transaction, 57% relationship; and public project and infrastructure, 55% transaction, 45% relationship.

Total for the rating agency is 62% transaction and 38% relationship and Moody's Analytics is 17% transaction, 83% relationship.

And, Craig, this is Ray.

I would just add, although you can do the math.

Although the relationship percentage is down compared to transaction, the absolute dollars of relationship revenue are up year on year both for Moody's Investors Service and Moody's Analytics.

And then can you also, Linda, break down, if you would, the segments underneath that?

The percentage of ABS, RMBS, a percentage breakdown for structured, corporate, etc.?

Yes, sure.

Let me frame this question, Craig.

I want to make sure everyone understands.

We've got about $77 million of increase in revenue in MIS for the first quarter of '11 versus '10.

About $55.4 million of that is coming from the corporate area; $17.9 million is coming from the structured area.

So as I said before, the lion's share is from corporate and the next piece is from structured.

FIG and PPIF are relatively flat, but let me go through the splits that you're looking for, Craig.

So for the first quarter of 2011 investment-grade was $36.5 million or 20% of corporate.

Now that's very strongly up, that's up $11.6 million from this time last year.

High yields $44.7 million, that's 25%, that's also up $11.1 million or 33% from last year.

Bank loans $34.6 million or 19% of corporate revenues, up 90% from last year's $16.4 million.

So you can see all three of those areas are up pretty dramatically.

Other is at $66 million and that's 36% of those fees and that's -- that's up $16.3 million or 33% as well.

So as you can see, all the corporate lines have shown very good growth and that's really driving the biggest part of MIS revenue increases.

So let's look at structured and start with ABS.

Looking at $26.7 million for ABS, 30% of those revenues, that's up $3.6 million.

RMBS at $23.1 million, 26% of structured revenues, that's up from $14.3 million last year, it's a 62% increase, so that's helpful.

We understand about 45% of that is from covered bonds.

Commercial real estate, $19 million, up from $12.3 million last year, a 54% increase.

And derivatives at $20.6 million, that's actually off a little bit from last year, 23% of the structured finance revenues which total $89.4 million.

Do you want me to keep going, Craig, with FIG and --?

Yes, could you just do the other two real quick, if you would, please?

Sure, okay so FIG is flattish from this time last year, $76.9 million; banking is $53.5 million; insurance $19.9 million; managed investments $3.6 million.

So all of them are looking relatively like they did last year.

And again, we had an increase of only $700,000 here in the financial institutions group line.

Turning to PPIF, PFG and Sovereign about $30 million, that's 46%; munis $4.5 million, and both of those lines were down a little bit from this point last year.

Project and infrastructure, $30 million, that was up about 20% from last year and it's a total $64.5 million for PPIF.

Last year at this time it was $61.4 million.

So you see FIG and Public Project and Infrastructure are basically flattish and corporate and to a lesser extent structured are really driving the changes in MIS revenue.

Thanks for that, Linda.

And then also how did your transaction revenues do over in Asia versus your overall transaction worldwide?

Actually, Craig, I don't have that off the top of my head.

But I would say that on the Moody's Analytics side we get a strong amount of transaction revenue coming out of Asia associated with our professional services business.

And Mark, I don't know if you have anything you can add to that, but --.

Only that you're right and I don't have the specifics at my fingertips.

Sorry, Craig.

And lastly, can you just update us on your -- where your major law cases are at right now?

Yes.

We've had a couple of developments in the first quarter.

First of all, a litigation on auction rate securities known as the Anschutz litigation, the claim against Moody's was dismissed.

And then we also had a shareholder class-action -- or purported class-action in which the class certification was denied.

So those are the principal developments in the first quarter.

Looking forward we have a -- we had a hearing on the CALPERS case in which following the fourth quarter hearing last year in which speech -- the ratings were recognized as speech, there was a second hearing in which the judge denied the plaintive discovery and that will be followed by a hearing in August for the plaintive to make its case.

We don't know whether that August hearing will result in a ruling in August from the court or not.

So the next date we're looking for is August but we don't know what the consequences of that hearing will be or the timing that comes from that.

And then finally, the Abu Dhabi litigation is in discovery, we expect it's going to continue in discovery through the summer and perhaps into the fall.

So the timing on that case remains I would say quite uncertain.

This is just a follow-on there.

What's the total number of cases that have been dismissed and withdrawn?

It's in -- I don't have the exact number for you, but it's the low 20s, almost two dozen.

Okay, great.

Thank you.

Thank you.

Doug Arthur, Evercore.

Yes, great.

Linda, do you have specifics on headcount by US and international for the quarter?

Yes, I do, Doug.

Last year fourth quarter we had a total of 4,461 employees, 2,333 US, 2,128 international.

We finished the first quarter with a net addition of only 53 heads and that's a 1% increase in headcount.

So we've talked before about last year's 2010 9% headcount increase.

We had said 4% to 5% headcount increase total for 2011.

So as you can see, we've lightened up on that.

Total MCO headcount at the end of the first quarter was 4,514 -- 2,350 basically in the US and 2,170 internationally basically, pretty close to even.

Great.

And then just on the public project and infrastructure area, while it was flattish, I mean given what was going on in the US municipal market, which I guess you were down 10% there, that's pretty impressive.

And then this big surge in international infrastructure, is that sustainable?

Yes, and you hit on it that the public finance -- US public finance business was down in the first quarter, not surprisingly.

But we did have good growth in the project and infrastructure line and that was international.

So that offset and actually did a little better than offset the decline in the US public finance business.

We do think that international infrastructure project finance is going to be an area of strength going forward.

It is about the same size as the US municipal business in the first quarter in terms of our revenues and we do think that the global infrastructure needs are going to be in place for a number of years.

Okay, great.

Thank you.

Bill Clark, KBW.

Well, I think you touched on the domestic regulatory front as far as implications for Dodd-Frank and SEC rules that are being written and discussed right now.

You touched on one of them as far as requirements for ratings in bank capital rules.

And I wondered if you could just expand on that a little bit more, if you've heard any recent information as far as what direction that might be going.

Sure, I think the dialogue that's going on is trying to respond to the mandate under Dodd-Frank to reduce the reliance on ratings and regulation and the requirement that government regulators and enterprises review their use of ratings and regulation with an eye to finding alternatives.

As you probably know, we support that.

We think that we have a healthy industry and a healthy business without the extent of use of ratings and regulation that currently exist.

However, there also seems to be a real struggle to find an alternative.

And so we don't know how -- whether it's banking system regulators or SEC or others -- are ultimately going to resolve that.

Moody's position is that whether ratings are ultimately used or some alternative is used, the systemic consequences from using any third-party measure of credit risk depends on how those measures are used as opposed to just what measure is chosen.

And so we are weighing in on this debate more on that side rather than the actual use of ratings and regulations.

All right, great.

Thank you.

(Operator Instructions).

Sloan Bohlen, Goldman Sachs.

Good afternoon, guys.

And Linda, I apologize on the typo on the note, we'll get that fixed.

I really just have the one question on free cash flow expectations and I'm wondering if you can give an update on CapEx spend for the year.

And then just what your thought is with regard to share repurchase versus now we've had two consecutive quarters of dividend increase.

Sure.

We take a look at our dividend every quarter and we've traditionally increased our dividend in line with earnings, so that's really what we were doing there.

We're balancing the dividend increases and the share repurchase activity and I think I answered the question earlier for Peter that we would continue to see that share repurchase being modest for this year.

In terms of cash flow expectations for the year, I don't think we'll go there specifically, our Q is not filed yet.

In terms of the levels of cash that we have, $720 million, we're up $60 million from the end of the fourth quarter.

And I would note that cash flow has been strengthening as issuance activity has been stronger.

So we feel good about our cash flow.

The increase in the dividend cost us about $23 million a year which is something we can handle quite easily.

So we'll continue to look at these things, make sure we keep them in balance.

But we're serious about the returning capital to shareholders.

Okay.

And then just any change to the expectations for CapEx spend in the year?

I'm sorry, we had said for $75 million and we're sticking to that.

Okay.

And then just one bookkeeping item.

For the strength in the quarter in Moody's Analytics you cited the CSI Global acquisition.

Is that -- should we consider that a good run rate going forward or was there a bigger pop in the first quarter that should maybe step down?

Mark, do you want to --?

Yes.

That's a pretty good run rate for the business.

It's important to note that even without the CSI acquisition the legacy professional services business was up more than double in the quarter.

So we saw a lot of strength in the base business and then we also got the incremental revenue from CSI and we'll continue to see increments on that order for the balance of the year.

Okay, great.

I appreciate it.

Thank you.

Thanks.

And it appears we have no further questions at this time.

I would like to turn the conference over to our presenters for any additional or closing remarks.

Okay, thank you.

Just before we end the call I wanted to let everyone know that Moody's will not be hosting an Investor Day this year.

Based on feedback we're going to make this a biennial event and in lieu we will be attending a number of conferences in the May/June time frame.

Our next Investor Day will be held in mid-2012.

And I just want to thank you all for joining the call today and we look forward to speaking with you again in July.

Thank you.

This concludes Moody's first-quarter earnings conference call.

As a reminder, a replay of this call will be available after 4 p.m.

Eastern Time on Moody's website.

Thank you.