Moody's Corporation at 2007 FBR Growth Conference - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

NEIL GODSEY, ANALYST, FRIEDMAN BILLINGS RAMSEY: Neil Godsey, I'm an analyst on the TMT equity research team at FBR. My pleasure to introduce Moody's Corporation. Today we have with us the Company's Chairman and Chief Executive Officer, Ray McDaniel; Chief Financial Officer, Linda Huber; and also Lisa Westlake who heads up the Company's investor relations department. With that, I'll turn it over to Ray.

RAY MCDANIEL, CHAIRMAN, CEO, MOODY'S CORPORATION: Okay. Thank you very much, Neil. I'll try and work through this presentation as efficiently as possible, leave some time for questions. I think you all are probably familiar with the disclaimer, but you're welcome to read that at you leisure.

Moving to our business filings, as I think you know, Moody's Corporation primarily is in the business of credit ratings and research. We offer credit opinions, globally, including opinions in over 100 nations to all styles and corporate issuers as you can see, almost 30,000 public finance issuers and almost 100,000 structured finance obligations. The fixed income research business is an important adjunct to our credit ratings business. Reaching almost 10,000 customer accounts and almost 30,000 individual users and then that business is complemented by our quantitative risk analytics business, primarily through Moody's KMV subsidiary which is a leading provider of quantitative risk assessment and management products.

As far as an overview of the Company, I think we have an excellent market position and brand. We have a diversified revenue base, perhaps more so than you might appreciate, which I will touch on in a few minutes. We've had a strong track record with new product introductions. Good and sustainable top and bottom-line growth, significant free cash flow and an experienced and successful management team, I'm pleased to point out. We operate in primarily two businesses, the Moody's investor service credit rating agency and the Moody's KMV business that I mentioned a moment ago and as you can see, the Moody's Investors Service business is the dominant business accounting for 93% of the corporate revenue's with the remaining 7% coming in Moody's KMV. In Moody's investor service most of the revenue comes from credit ratings and fees paid by issuers of securities for those ratings with the remainder coming from our credit research business.

We are, at this point in time, a global organization. This map, if you go back 22 years, would only have a flag in the United States, our international expansion began in 1985 in Tokyo, followed by the U.K. in 1986 and the following countries and joint venture affiliations in the intervening years. You can also see at the bottom our staffing. We now have almost 3500 employees worldwide. And about 1,000 of those are analysts in the credit rating agency. Our investment highlights. We do benefit from the growth of the public debt markets.

You can see on the table the growth in global rated debt, the total compound annual growth rate for the last five years has been 23%. And that has been the result of both some favorable cyclical conditions but I think more importantly as we look forward, to some very favorable secular long-term drivers that are listed on the bottom of this slide, including globalization and deregulation, disintermediation of financial assets from the banking system into the public securities markets, and financial engineering, financial technology, as channeled primarily through the structured finance market. Moody's estimates for global industry market share are as follows. You can see we believe that Moody's and you our largest competitor, Standard & Poor's have essentially the same market share followed by Fitch and then smaller agencies, including a number of agencies that operate primarily in domestic emerging marketing around the world.

Moving to the Company's operations. This is our revenue distribution and growth by product. In the pie chart, you can see the revenue distribution by product, the two yellowish or yellow and tan slices of the pie combined represent our structured finance business globally. And the two blue slices of the pie represent our company ratings business globally. You can see that those are the major contributors to the overall revenue by product with public, the U.S. public finance, municipal bond ratings, research and the Moody's KMV business filling out this revenue profile.

The good news story for us is seen over in the bar chart, where we've had not only exceptional growth coming out of our research business, but double digit growth in all the businesses except for the mature U.S. municipal finance business, and very strong growth coming out of our largest business, which is the structured finance business. So it is, it is both large and a significant growth engine for the Company.

Looking a bit more at revenue distribution by product. This is an effort to capture an answer to the very topical question that we've been asked over the last three or four months, which is how much of our business is related to the U.S. housing market and particularly the U.S. subprime component of the housing market? And you can see here that we have deconstructed our product revenues to break out the two …