Good morning and welcome to the MoneyGram International fourth quarter 2010 earnings conference call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Alex Holmes.
Thank you and good morning. We're calling today from snowy Dallas, about 5 inches of snow fell on the ground this morning or over the night. So we're looking forward to a messy street in a Super Bowl on Sunday, so good morning, everyone. It's Alex Holmes, Senior Vice President of Investor Relations and Corporate Strategy. I'd like to welcome you all to our fourth quarter and full year 2010 conference call.
With me today are Pam Patsley, our Chairman and Chief Executive Officer; and Jim Shields, Executive Vice President and Chief Financial Officer.
If you have not yet seen our earnings release, you can find it on our website at MoneyGram.com.
I must remind you that today's call is being recorded and that the various remarks we make about future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from expectations, plans and prospects contemplated in any forward-looking statements as a result of various factors, including those discussed in our filings with the SEC. I encourage everyone on this call to read our SEC filings including our 10-K for the year ended December 31, 2010, which is expected to be filed with the SEC by March 16.
Additionally, I'd like to note that today's remarks include certain non-GAAP financial measures including EBITDA, adjusted EBITDA and adjusted EBITDA margin. Our earnings release includes a full reconciliation of these non-GAAP financial measures to related GAAP financial measures.
Finally, I'd also like to note that we've made a few changes to our financial statement presentation for reporting this quarter. Jim, will share the details of this with you later.
And with that, I'll the turn the call over to Pam.
Thanks Alex. Good morning, everyone, and thanks for your interest. I'd just like to start by saying we are very pleased with MoneyGram's fourth quarter and full year financial performance. We are definitely a stronger company than we were a year ago. We're more focused on our key strategies and we're better positioned for growth.
Our core business has strengthened. We're growing transactions to our alignment around quarters and (inaudible) for population, and while there are still economic challenges around the world, we're beginning to see areas of exceptional growth.
In the fourth quarter money trends for transaction volumes increased 12% with constant currency revenue growth improving a strong 9%. This is our second consecutive quarter of improving trends in both transaction and revenue growth. And we are pleased with these results and our market position.
Transaction growth in the quarter was driven by improvement in our U.S. intra and outbound business as we as 18% non-U.S. originated transaction growth. In 2010 we greatly improved our global reach, adding 37,000 new agent locations, an increase if 19%. We ended the year with 227,000 global agent locations and a healthy pipeline entering 2011.
Importantly, during the quarter we continued our focus on improving the bottomline through profits improvement and cost reduction. We delivered adjusted EBITDA of $59.8 million and we improved fourth quarter adjusted EBITDA margin to 19.7%, and improved full-year adjusted EBITDA margin to 21.8%. And this is after considering that both the quarter and full-year adjusted EBITDA margins were impacted by increased marketing spend in 2010 as well as lower net investment revenue in 2010 compared with that in 2009.
Finally, as in previous quarters we improved our capital structure through debt reduction by paying down an additional $75 million in outstanding debt. In two years, we have reduced our outstanding debt by $352 million, a reduction of more than 35%. From top-to-bottom it was a good year and an exciting quarter. So let's take a closer look.
Beginning with the Americas, we delivered solid transaction revenue and network growth across all Americas send regions in the fourth quarter. This was the second consecutive quarter with positive and accelerating transaction growth to many important quarters. Each of our channels showed improving same store sales growth with the smaller retail and independent segments really beginning to rebound.
The expansion of our agent network in other areas around the globe continues to see a good organic growth in transactions sent from the Americas. And while not all market are as robust as we'd like them to be, we do feel good about the direction the business is heading.
Transactions originating in the U.S., but excluding transactions sent to Mexico increased a solid 11% with some of the strongest U.S. sent quarters in the quarter being South America, Caribbean, Southern Asia and Philippines. Transactions sent to Mexico increased a healthy 6% and we continue to focus on improving performance in this important quarter.
Some other exciting news that actually plays right into our focus on growing sent to Mexico is the expansion of our partnership with Visa. A few days ago we announced our cash-to-Visa account program, which is now available throughout Mexico. We are excited about the prospects for expanding this partnership with Visa into other markets.
Transactions and outbound from Latin America also accelerated in the fourth quarter, increasing more than 20%, driven primarily by sent from Panama and Venezuela. As we said on our last call, we increased our advertising in the fourth quarter, promoting our U.S. to U.S. business and the new $50 price band in particular.
The results of this campaign were favorable, and our U.S. intra business was again strong, delivering 13% transaction growth in the quarter, a nice acceleration from the third quarter. While revenue growth for our U.S. to U.S. business was positive in the quarter, we anticipate revenue growth to be muted by the $50 price band into the second quarter.
We had several key re-signings in the fourth quarter, including Raley's, Stater Brothers and Albertsons LLC along with a couple of key additions to the network as we signed Digital check cashers in California and Long Island Expressway check cashers in New York.
Additionally, we've restarted the Cardtronics send capability from their ATM machines in over 2,711 convenient store locations in January. We're pleased that they are up and operational for sends and received once again.
In Mexico, we extended our long-term, an important relationship with Bancomer Transfer Services. BTS represents one of the largest payout networks in Mexcio, and it's a valued partner with opportunities for expansion to other networks that MoneyGram is not currently accessing today.
In Brazil, we began the rollout of Ourominas and a direct super-agent. This relationship assists us in pursuing retail outlets in Brazil, and increasing our sent business from and within this growing economy.
Volume is growing nicely and we're pleased with our progress here. And of course, with the upcoming world events in Brazil, such as World Cup 2014 and the summer Olympic in Rio 2016, we are positioning MoneyGram and our agent relationship to benefit from this economic growth in Brazil.
Now, outside of the Americas, we also had an excellent quarter. We entered new market, added new parterres, expanded our capabilities and accelerated both transaction and revenue growth. Across Europe we had a very good quarter at Italy, Germany and France continued the strong transaction growth.
Italy's result, were driven by sent to China and growth in sent both Romania and Albania. Our France retail business remained strong, delivering 42% transaction growth in the quarter. Germany delivered 33% transaction growth on the strength of increasing retail and PSD location. In Spain transaction growth a positive 2%, now this is our first quarter of positive transaction growth in 10 quarters from the same and it's reflective of our effort turn around this important money transfer market.
While we're pleased with the turn around, the countries economic condition do keep our outlook somewhat muted. Throughout Europe our network growth due to the PSD initiative is accelerating. Growth continues to be soft in Ireland and Greece, of course due to their current economic challenges in those countries.
In Switzerland, we established a partnership with Valora, that's the country's largest retailer, which significantly expands our presence in this important send market. The service will be initially offered in more than 500 kiosk locations this year and a total of 1,000 in 2012, making MoneyGram the leading provider of international money transfer services in Switzerland.
In Spain, just yesterday, we announced our agreement with Movistar Remeses, a division of Spanish telecommunications giant Telefónica. Through the strategic agreement, Movistar Remeses now offers its 1,500 independently owned retail locations, the opportunity to provide MoneyGram's services to its consumers across Spain.
Our presence in Russia continues to strengthen, not only did we generate transaction growth of 35% in the quarter, we also launched with Sberbank, Russia's largest and oldest bank. MoneyGram's valued money transfer service is now live and available for consumers to send and receive money at over 8,000 Sberbank locations across for this is the world's third largest remittance market.
The marketing plan with Sberbank is ramping up during the first quarter. In CIS, we extended our reach in public stand with PTA Bank and extended our service with multicurrency capability. In Lithuania, we added Siauliu bankas and its 51 locations across the country. This is the third new partner signed in Lithuania after we reentered the market last year, stably following an 8 month absence.
Now, from a multiregional agent perspective, we strengthened our partnership with Societe Generale. The expanded agreement offers MoneyGram services through Societe Generale's international retail banking network of 6,800 locations in 37 countries. This global agreement is an extension of our already successful partnership with them in Albania, Ghana, Russia, Mayotte and Reunion.
In Africa, received transactions remained strong with transactions sent from France and Benelux to Franco-zone Africa leading the way. In Morocco, we added Ramapar and its 171 locations. Ramapar is an independent network in Morocco with only dedicated location. And we anticipate this will add to our already double-digit growth in Morocco.
The Western Africa region also had solid received transaction performance in the quarter, particularly from Kenya. Nigeria continued with nice growth following our activation of First Bank this past June.
In the Middle East, Saudi Arabia saw increased transaction growth to many quarters, including India, Pakistan and the Philippines. While the UAE remains challenged outbound since from Israel and Lebanon helped to ramped up solid results in the region.
Of course, we're all keeping our eyes on Egypt for a number of reasons. But specific to our business is our agents to bank, banks have been closed, so payouts are temporarily on hold. And while Egypt does not represent a significant portion of our revenue, certainly we are all anxious for our agent and importantly our consumers in Egypt to return to their normal daily life.
The Asia pacific region experience excellent growth on the strength of China, the Philippine and Indian market. China benefited from the ramp up of Bank of China locations and growth of ICBC. The Philippines reported 32% transaction growth and India reported strong transaction performance with 29% growth.
Now in Japan, we are really pleased to announce the expansion of our services through a new agent agreement with company called SBI Remit Co. Ltd. Now, Japan is a thinned market with a lot of growth potential that is truly and largely under-penetrated by the traditional money transfer firms to date.
SBI Remit is a Japanese based online money transfer provider. In December, we launched this innovative service, which enables SBI customers to initiate MoneyGram transactions online after depositing funds at ATM's or kiosk in convenient stores.
In Australia, we launched Kiosk with 7-Eleven and renewed ASP global services. In China, we added 322 (inaudible) commercial bank locations. In India, our super-agent UAE exchange and subagent agreement with Bank of Baroda and Axis Bank, adding just under 600 locations with the potential to grow to more than 3000 in total.
Now if you would look at marketing. We do continue our focus on marketing activities from promoting our brand, driving awareness and building affinity with consumers all over the world. Importantly during the quarter, as I mentioned, we increased marketing spend to support successful holiday campaigns including Diwali, Eid and Christmas.
We launched a six-week global campaign in early October celebrating Diwali, the Hindu festival of lights. Through this campaign, we targeted the South Asian diaspora.
We also ran a successful three-week national marketing campaign turning U.S. to U.S. vendors promoting our $50 spend or $5 gift program. This was a fully integrated promotion, utilizing all media avenue like TV, Billboard, in-store media circulars and so on. This was all in the U.S.
And as we mention last quarter, we're thrilled to be the efficient money transfer provider of the International Cricket Council or the ICC. We're building consumer excitement around the ICC cricket sponsorship, which kicks off with the first World Cup game in Bangladesh on February 19.
We're building momentum and excitement in send and receive markets. I encourage you to go to Youtube to view our promotional and really see what the excitement's about in our sponsorship at the ICC, and look forward to updating you on our success in this area on the Q1 call.
Turning now to our bill payment business, during the quarter transaction volume decreased 3% and revenues decreased 8%. The decline in transaction and revenue was led by a continued softness in our traditional auto loan and credit card payment category.
However, while smaller as a percent of transaction in revenue volume, our mobile top up, the collections in prepaid card load category continue to show strong growth. New billing launches and expanded distribution for our services are expected to assist in reversing this negative trend in 2011.
To that end, our partnership with Fiserv to offer same-day bill payments service to financial institutions online bill payment customers remains on track for launch in late first quarter. It is expected to ramp throughout the year.
During the quarter we added new billers, we added Verizon Wireless, AT&T wireless, AT&T GoPhone, Simple Mobile and Pacific Gas and Electric. We also launched cross-border top up capabilities, enabling consumers to reach out mobile devices in the Philippines for many MoneyGram locations in the U.S.
And with that, I'd like to turn it back to Alex to discuss what's happening with these new channels, new products and some key new partners.
Thanks Pam. In the first quarter of 2010, we discussed our focus on expanding our core money transfer service through new channels and partnerships. And through the year we've updated you on our progress in this area, highlighting key signings and new product.
MoneyGram now provides consumers the option to send or receive money through new channels and partnerships in more than 15 markets around the world. These range from four different online solutions and as many markets, service in more than 3,000 ATMs in kiosk in four markets. Three different directed bank option, three live mobile services and receive to card capability in five markets.
The growth in these channels has been excellent. In total these new channels represented more than 2% of our total revenue and 3% of money transfer revenue in 2010. We anticipate these percentages to increase in 2011. During the quarter, MoneyGram online business continued its impressive growth.
Fourth quarter transaction volume increased 34% over prior year and revenue increased 29%, highlighted by U.S. inter-volume and sent to the Philippines. This service enhances our reach to new customers that are looking for alternative and convenient ways to send money. Outside of the U.S. our online services through our partners, the Italian Post and NTB in Saudi Arabia also performed very well.
Now, as Pam mentioned, our agreement with SBI Remit in Japan, which we signed in December also provides a new convenient online service to money transfer customers to send money. SBI customers can deposit money into their account using ATM's or through kiosk, located at convenient stores across the country. And then send money online to anyone of MoneyGram's locations around the world. This an exclusive arrangement in our fourth market where we have enabled consumers to send online money transfers.
On Wednesday, we announced the launch of MoneyGram's first cash-to-Visa account program for remittances from the U.S. to Mexico. Beginning this month, consumers can visit any of the 35,000 MoneyGram locations in U.S. to send funds directly to the Visa accounts or recipients in Mexico.
Once funds are sent to the Visa account, recipients can conveniently access the money anywhere Visa is accepted or at any visa ATM. This programm is an extension of MoneyGram's cash-to-Visa service in Guatemala, which we've launched earlier last year.
This is an exciting development in our quest to deliver solutions, to help our customer send and receive money anywhere they want, anywhere in the world. We're bringing added convenience and choice to our customers in the U.S. and Mexico. Our relationship with Visa and the ability to leverage it's extensive global network provides MoneyGram with access to Visa account holders around the world, and enables us to offer valuable services to a new segment of customers.
During the quarter we also launched a partnership with Valora in Switzerland. What's unique about the agreement is that it allows customers to send funds via a pre-registered card at the cashier's desk in a Valora convenient store, shortening transaction times and reducing paper work at the point of sale.
Finally, during the quarter in Senegal, we partnered with Caisse Nationale de Crédit Agricole du Sénégal to offer an alternative receive option for their customers in Senegal. By transferring the MoneyGram received transaction to the co-branded (inaudible) MoneyGram prepaid card, customers can then use this card to make purchases directly at retail locations or to withdraw cash around the country.
You can see from many of these examples, MoneyGram is committed to meeting consumer needs around the globe. We're creating new revenue streams and new channels of growth for the company. We look forward to updating you on our further progress throughout 2011.
And with that I'll turn it to Jim to take you through the financials.
Before I get into the numbers, I want to make a few comments on changes to our financial statement presentation. As a result of an internal review to enhance management in external reporting, the company revised the presentation of its consolidated statement of income. This review incorporated, one, feedback from analysts and shareholders, two, industry and accounting standards, and three, an assessment of the statements themselves to ensure we continue to provide transparent and meaningful information to all of our stakeholders.
As a result of this review, the company will no longer present net revenue, previously measured as revenue less total commission expense, as this measure was not found to be a meaningful metric. We will however, continue to break out commissions under expenses as a separate line item. The company has also created an operating income measure consistent with management reporting.
So let me begin to talk about our financial performance.
Net income for the quarter was $16.2 million and EBITDA was $67.8 million. Both net income and EBITDA were impacted by $5.9 million of stock based compensation, $16.5 million of a reversal of a patent law suit accrual, and $2.3 million of restructuring and reorganization costs. Net income was also impacted by a $3.6 million write-off of deferred financing costs and debt discount related to the $65 million debt prepayment in the quarter.
Adjusted EBITDA for the quarter was $59.8 million versus $57.4 million in the prior year. Adjusted EBITDA margin was 19.7% in the fourth quarter of 2010 compared with 19.4% in the same period last year. However, fourth quarter 2010 adjusted EBITDA reflects lower net investment revenue of $1.2 million, and increasing marketing expense of $3.8 million compared with the same period in 2009.
Full year adjusted EBITDA margin increased to 21.8% from 21.3% in 2009. Full year adjusted EBITDA margin was also impacted by lower net investment revenue and increased marketing spend in 2010.
Looking at revenue, total revenue in the fourth quarter increased 2.6% to $303.4 million compared with $295.6 million in the fourth quarter of 2009.
Total fee and other revenue increased 3.1% to $298.3 million from $289.4 million in the fourth quarter of 2009. Total revenue in the fourth quarter reflects investment revenue that was $1.2 million less than the fourth quarter in 2009.
Full year total revenue in 2010 was $1.167 billion, up from the $1.162 billion in 2009. Total revenue in 2010 reflects investment revenue that was $11.9 million less than 2009.
Money transfer fee and other revenue increased 7% in the fourth quarter of 2009 versus prior year. On a constant currency basis, money transfer fee and other revenue increased by 9% versus prior year.
Fee and other revenue from bill payment and financial paper products declined as the shift in mix continued to impact revenue for bill pay and also lowered rates and lower balance continue to negatively impact investment revenue for financial paper products.
Turning to expenses, total commission expenses for the quarter was $131.2 million, up $2.6 million or 2% from $128.7 million in the fourth quarter of last year, driven by an increase in money transfer revenue. Compensation and benefits are up $16.6 million in the fourth quarter from the previous year, but there are several significant items impacting expenses in both years.
2009 benefited from a $15.5 million net curtailment gain, partially offset by stock based compensation that was $1.2 million higher than in 2010 along with $0.5 million of severance in 2009. In addition, 2010 includes $9,000 of restructuring cost. The net of these items is $14.6 million in the results and a year-over-year increase of $2 million or 4%.
As reported, transaction and operation support expense line improved to $43.4 million or 50%. However, you need to take into account a number of unique items affecting that number. The fourth quarter of last year was impacted by a $20.3 million legal accrual for shareholder litigations and asset impairment charges of $6.1 million.
The fourth quarter of 2010 was impacted by $600,000 of restructuring, asset impairment charges of $300,000 and benefited from $16.4 million reversal of the patent lawsuit accrual. After considering those items, we are pleased to note that transaction and operation support improved 3%.
Occupancy, equipment and supplies expense line was favorable $100,000, but was impacted by $800,000 of restructuring costs. In addition, depreciation and amortization was favorable 8% in the quarter due to disciplined capital spend. Taking these items into account, total operating expenses were roughly flat compared to the fourth quarter of 2009.
Looking at other expense items, interest expense was favorable 9%, even after considering a $3.6 million write-off of deferred financing costs and debt discounts related to the $65 million debt prepayment in the quarter.
In July of 2010 we announced the first phase of our global initiative to realign our management and operations with the changing global market and streamlining operations to promote a more efficient and scalable cost structure. We are actively taking out layers, redirecting reporting lines, globalizing responsibility and moving decision-making closer to the marketplace. At the time, we had anticipated $45 million to $50 million of cash outlays to generate annual pre-tax cost savings of $25 million to $30 million.
To-date we have spent $5.9 million, which is mostly attributable to buy out of excess office space etcetera. We are on track to achieve our stated goal of realizing our anticipated savings when fully implemented in 2012.
In 2011 we anticipate incurring $15 million in restructuring related cost. It is clear to see, when you consider both our restructuring plans and operating expense savings, we have many cost and process improvement initiatives underway that are all favorably impacting the bottom line and improving our performance.
Turning to the segments now, total revenue for Global Funds Transfer segment increased by 5%, $276.7 million as reported in the fourth quarter.
Revenue was driven by 12% growth in the money transfer transaction volume, and that growth was partially offset by a $50 price band and the decline in bill payment revenue that Pam talked about earlier. The segment reported operating income of $44.2 million and an operating margin of 16%. Adjusted for stock based compensation allocated to this segment in legal accruals reported in 2010 and 2009, adjusted operating margin improved 11.9% in the quarter from 11.4% in the prior year.
Margin improvement for the quarter is even more impressive, when you consider this expansion includes a $3.8 million increase in marketing spend in the fourth quarter of 2010 as compared to 2009.
For financial paper products, total revenue for the segment declined 14% to $26 million in the fourth quarter of 2010. Average investable balances were down $533 million year-over-year in the fourth quarter due to the run-off of balances from repricing of customers in 2008 and 2009. Net investment revenue declined $900,000 due to lower balances and historically low short-term interest rates.
Operating income was increased to $8.6 million, and operating margin in the fourth quarter of 2010 improved to 32.9%. Adjusted for the allocated portion of stock based compensation, margin improved to 36.1% in the quarter.
As we look ahead, any rebound in interest rates in 2011 will significantly enhance the profitability of this product.
Our liquidity position remains strong. We started the quarter with assets in excess of payment service obligations of $290 million. During the quarter, we reported adjusted EBITDA of $60 million, made a total of $20 million in interest payments and $75 million of principal payments on our debt. We received a $5 million tax refund, and funded $11 million of capital expenditures and $11 million of signing bonus payments.
This, along with $8 million of other balance sheet and working capital items led to our ending the quarter with assets in excess of service payment obligations of $230 million. This, combined with our revolving credit facility, provides us with ample liquidity for operations and to meet covenant requirements.
We continue to focus prudently, managing our cash. Over the past several quarters, we have gained greater visibility into our day-to-day cash movement. We are continuously looking for every opportunity to improve our liquidity, whether it's in how we settle with agents, the amount we fund, and increasing our efforts around collections.
We remain focused on liquidity management and take every opportunity to optimize working capital.
In 2010, we paid down a $165 million in debt, and we ended the quarter with outstanding debt principal of $641 million, and we will continue to pay down debt in 2011.
Now, I'd like to turn it back to Pam.
In summary, 2010 was a good year with solid performance and accelerating growth in our core money transfer business. We saw improvements in our volume, we expanded our margins and we grew our network a whopping 19%. More specifically, we renewed our commitment to improving the customer experience.
Now, I know you all have heard this from me before, but I believe it bears repeating, because we haven't changed our focus. We remain focused on increasing our market share, accelerating our top-line growth, expanding our margins, paying down debt - $75 million this past quarter, reinvesting in our brand, our people and our product. And we're executing these against the backdrop of a $400 plus billion dynamic global industry and we're the number two player.
We have the team in place, the right mindset and the right alignment. I am probably most excited about the winning culture that we're building here at MoneyGram.
I look forward to a great 2011 and visiting with you again soon. Thanks again for your time and your interest today.
(Operator Instructions) At this time, we'll hear first from (James Casine with Bank of America-Merrill Lynch).
Do you have a little more insight in terms of what's driving the improvement in the U.S. to Mexico business? Is it strictly macro or is it things that you are doing? Maybe a little insight in terms of which U.S. to Mexico corridors are strongest?
I think it's both; I think there is definitely an element of macro. I won't try and take credit solely for that, but I think the team has worked really hard to reinvigorate those send locations.
And to the second part of your question, Jim it really would be just looking at the Hispanic or the Mexican-specific diaspora in the U.S.; Texas, California, a number of places. So I think we've put activities in place on both the send side and importantly on the receive side to generate excitement around our brands and our products for that quarter.
Any color on pricing? I know there's a pricing drag obviously with the 5 for 50. But can you quantify across the entire business. And then beyond the second quarter, would you expect the drag from pricing to moderate somewhat?
As for the latter part we definitely would expect it to moderate. It begins to moderate towards the latter part of the second quarter. And I am not sure we've ever really kind of quantified globally pricing, but I'll turn to Jim and ask if you want to add anything.
I think what we've seen is obviously the 5 for 50 obviously, it's been pricing pressure here in the United States. Outside of it we see pockets of areas where we've seen some pricing enter in specific countries in specific quarters, but on a net-net basis we see very, very little in terms of pricing pressure outside of the U.S. for this particular quarter.
Visa obviously highlighted the MoneyGram deal the other night on their conference call as well. Would you expect this to move the needle in '11 or '12 - and not specifically on the Visa deal, but just the economics of cash-to-account or account-to-cash versus cash-to-cash.
We are really excited about the opportunity. You have to begin somewhere. So it's very hard against the whole of our portfolio to say, first year of launch, all of a sudden it moved to be in the top ten kind of quarter activity. But our prospects for it I think are quite bullish and encouraging.
So maybe move the needle isn't the right way. It contributes to moving the needle for sure. And I think it has tremendous potential, not just for Mexico and Guatemala, but around the world. We are thrilled with launching this. Alex, if you want to add anything else. You and your team has been working a lot that's based on this.
I think the product is certainly wholly unique. Certainly, there has been a lot of growth around the world in direct-to-back activity. I think certainly, that Mexico in particular the last couple of years has seen some good success and increase with the direct-to-bank activity. This product is obviously a little bit unique in that sense, going to a Visa card versus your typical bank account.
But a lot of consumer studies we have done, research and the consumer feedback have been very positive about the product. And so, obviously it is unique, it's different. So rollout timing is always interesting in terms of consumer adoption. So that will be something we'll be tracking very carefully. But we think it's a good opportunity for us.
We will take our next question from Bob Napoli with Piper Jaffray.
Bob Napoli - Piper Jaffray
Just maybe a follow-up on the pricing question. It seems like Western Union is trying to narrow the gap I think from their pricing levels versus the industry. They are talking about pricing reductions I think in the 2% to 3% range in 2011. Now what is the price gap, and is that something that concerns you? You seem to see less pricing pressure than what we are hearing out of Western Union.
I wouldn't call it pricing pressure from Western Union, but more of a strategy.
Yes, I think we have been very successful in implementing a quarter-specific pricing strategy, and there is no question, we flex that pricing by quarter or event-driven, holiday-driven, promotional-driven, agent-driven initiatives. So I don't want to imply that there is no pricing activity. All are lowering prices from time to time.
I like our position. I am not sure I could quantify broadly across into 16,000, 17,000 quarters on average what that delta is, but we like our position.
Bob Napoli - Piper Jaffray
Just on the expense side, did I hear that there are some expenses related to writing-off debt costs on your pay down of debt?
Yes, we paid down $75 million of debt in the fourth quarter associated with that. We had some non-cash items expense costs associated. That's associated with the discount and that's associated with some of the costs associated with issuing that debt that we are amortizing over the debt. And once you prepay it early, you basically have to take a write-off on that during the quarter that you prepay it, the proportion of it.
Bob Napoli - Piper Jaffray
How much was that?
That was $3.6 million write-off during the quarter.
Bob Napoli - Piper Jaffray
But that doesn't show up as an add-back to EBITDA?
No, that's not in add-back to EBITDA.
Bob Napoli - Piper Jaffray
And did you have that same expense a year ago? Just trying to get a gauge on margin.
Every quarter that we basically prepay a certain amount of our debt, we'll be less. Like, last quarter we paid $25 million, so it's a less amount. So on a year-over-year basis, since it's the largest amount we paid in one particular quarter, so this is going to be the greatest amount that we had.
We prepaid in fourth quarter '09, $40 million. And so we wouldn't have what was a two point something million from the fourth quarter last year.
Yes, it's proportional between the two.
Bob Napoli - Piper Jaffray
What is the U.S. right now as a percentage of your revenue, and where do you see that five years from now just generally? Can you talk big picture about that?
I don't think we've specifically disclose the U.S. per se as a percent of our revenue. We feel that we continue to grow into a more globally-balanced portfolio. In other words, we were stronger in the U.S. before we began really building up our non-U.S. business. And so we continue to grow. So you continue to see even just looking outside of the Americas, we're outgrowing or growing around it.
So we think there is growth potential still in the U.S., because it's just organic opportunities as we build network in receive markets. U.S. can still grow, but there will be higher growth rates in other parts of the world, because we're in a very early stage in some of the really big send markets.
(Operator Instructions) We will hear next from Kartik Mehta with Northcoast Research.
Kartik Mehta - Northcoast Research
Why don't you talk a little bit about the domestic business in 2010? Obviously a significant competition in that business. Pricing came down quite a bit. And when you do look out to 2011, do you anticipate that competition will abate and pricing will stay where it is, or would you expect some pricing pressure in that business as well?
We get lots about competition, but for that, I think, Kartik, you're talking about that intra-U.S. business?
Kartik Mehta - Northcoast Research
Yes, the domestic business.
There are just a couple of players really addressing and serving that market. It looks like things have kind of settled in and there is a new price band in place and it's generating new interest and drawing new consumers to the product. And so that's a positive for the industry. And we continue to look at the market and think what can we do to provide differentiation. And differentiation doesn't always have to be synonymous with price.
Kartik Mehta - Northcoast Research
And then, Alex, you talked a little bit about cash-to-Visa account program. I'm wondering up to this point, it seems like programs that dealt with cards have had limited success. What is different about this program where you think you can have more success?
I think there are a couple of variables in there. Number one, I think Visa is obviously a significant factor in that. There is 56 million Visa cards approximately in Mexico. So certainly from distribution perspective, there are a lot of people that have them, capability to use them.
I think the growth in direct-to-bank activity has certainly been significant there. We have seen continued growth in the services that we offer. And so I think that tying this one on to that activity goes right in line with the direction I think the market is moving, a little bit. Obviously, cash-to-cash is still the major component of how money moves, particularly in Mexico and the rest of the world.
But I think the banks are definitely on board with it. From the conversations we've had with those that will be participating with us in the program, most of them are very excited about it. A lot of them are very interested in doing some marketing on their end from the receiver perspective. So obliviously there is components of education not only on the send side, but also on the receive side. And to the extent that receivers are looking for that money in certain places, it makes a big difference.
I think it also opens the doors a little bit to new customer groups. I think one of the differences maybe at a very high level, we're not trying to put cards in someone's hands. They already have the cards in their hands. We're just trying to link cash flow into that card.
Kartik Mehta - Northcoast Research
Just a last question, Pam, on the bill payment business. Obviously, the economy has had a negative impact on it. And then you've change some of your strategy. If you look at this business going forward and as the economy hopefully normalizes, what type of growth would you anticipate this business having?
No, we don't give projections or guidance. But right now, we are working on just getting it positive. But there is no reason to not believe it couldn't grow alongside our money transfer business with some very robust growth when you think about kind of products expansion and geographic expansion, both of which are solidly in our mind.
Kartik Mehta - Northcoast Research
Pam, would that mean that you'd expect that there is no reason that business shouldn't grow at the same rate as the money transfer business? Is that what the answer would imply?
The question is when do we get back to that level just given what we're having to grow over from the economic conditions and particularly on two of those. But I think it can definitely get there.
We'll move to our next question from Mike Grondahl with Northland Capital Markets.
Mike Grondahl - Northland Capital Markets
Congratulations on a nice quarter, especially the agent growth and the continued growth in transactions. Specifically on the transaction growth, from a high level, could you help us understand what is driving that acceleration in growth and is it new agents, is it the economy, is it pricing, is it new product, just maybe rank those in order of importance?
I was just going to say yes. Then you threw in that rank part. And I'm not sure I can give that a global rank, because when I look to certain parts of the world and where we're just really emerging and putting marketing initiatives and developing a network, so it's going to less about returns, better general economic conditions and more about network growth, marketing, that sort of thing. So it really does vary.
But if you look at the some of the big send markets where I guess we are now at a year-and-a-half since we've been in Saudi Arabia, the second largest send market on transactions, and that just continues to do so well for us. And it's also one of those emerging, if you will, or new technology, new products that this is all through on my registration and in ATM.
So all those are very exciting. We think we have to keep working on all of those and hope that the economic conditions cooperate. So as you know, we were dragged down by the economic conditions in certainly lot of the world, Iberia Peninsula, Greece, Ireland and a few other places, the UAE.
Mike Grondahl - Northland Capital Markets
Maybe specifically, Pam, the new agents in 2010, were you impressed with the ramp that they've kind of contributed or how has that gone?
I'm first impressed with just the portfolio that we signed, loaded, activated, trained from the sales team through to the ops teams that's responsible for getting these agents up and through the compliance process and all that, I'm first very impress with that. And we have brought I think a renewed focus, and it does help very nicely into kind of a new brand campaign, if you will, or certainly tweaking what was our brand campaign a couple of years ago.
So I think that has also been very helpful, and I think our renewed on putting the quarters together has been a key contributor in getting these activated. So it's not just let's find a Sberbank and get them activated or where the people in Russia send. Let's make sure we are also doing the mirroring activities on the receive side.
Let's not just sign agents across South Asia if we're not doing activity in the big send parts of the worlds, the U.K., the U.S., the Gulf State, to activate sends into South Asia.
And that's really what I get to at the end when I was saying it's a new culture and new mindset. My goal is to empower the team to work together, think creatively, and everybody is motivated and they need both sides to work together.
Mike Grondahl - Northland Capital Markets
And may be lastly, I think early on, it was mentioned that your agent pipeline was pretty solid or strong. Could you just give us to little bit more color on that maybe?
I'll just restate it. We're really pleased with the pipeline on new agent network growth that we have coming into 2011. I mean it's lumpy. How could I tell you which quarter, what kind of growth rate? So one quarter when you add a Sberbank right versus another quarter you don't add a Sberbank, but you've got the great retail sales and Jim working everywhere, you're adding PSC, we're happy with our pipeline.
And we'll take our final question from Robert Dodd with Morgan Keegan.
Robert Dodd - Morgan Keegan
Some quick housekeeping ones, if I can. First, on the restructuring cost of $2.3 million, I mean not very much, but how much of that was in GFT versus payment?
Don't have those numbers broken out. Those are almost all occurring at the corporate level.
Robert Dodd - Morgan Keegan
On the payment services or investment revenue line, revenues were up sequentially, payment service obligations (inaudible) was down sequentially. Are you are doing any repositioning on the portfolio to drive up yields or was it just a fluke?
We wish we could. But unfortunately, we look at it very, very hard, and we look at things such as where we can invest better based upon our investment criteria, what we're limited to by both our banks and the regulatory agencies, which is very strict. And we also look at going out and laddering out a little bit in terms of not far, but six months to nine months. But there is basically no perfs to pick up really, very, very limited to pickup on that. So there is not much repositioning at all we have done relative to the portfolio.
Robert Dodd - Morgan Keegan
Can you give us a quick recap on what the covenant rules are on the tranche pay and then secondly what restrictions are now on cash pay on the preferred?
It doesn't lend itself to an easy answer, because there are very complicated formulas in terms of pay. If we had to generalize, I would say basically if you look at our net income basket and you take a look at under each of both the indenture and under the credit facility and you take half of that number and that basket builds on a quarterly basis, and as you build your net income, you have more ability to pay out restricted payments in order for you to make a cash payment on your pick.
Right. And I think you are also asking once we pay off the date, we can start paying on the (egg). I mean that's not a problem.
Robert Dodd - Morgan Keegan
One of the things you mentioned on the Visa program to expand this to cash to account of any sort. But you mentioned 56 million cardholders in Mexico, but I guess $64,000 question is what's the overlaps between Mexican cardholders and the (inaudible) cash receivers in the traditional market. Do you have any demographic data on it like that?
Well, off the top of my head, I think there is about 101 million people in Mexico. So that feels like it's pretty well penetrated. I don't have the statistics in front of me either on sort of bank account holders as well, but I would just tell you that we did a lot of consumer research and consumer discussions and we did a lot of discussions with the banks as well, discussions with Visa on usage and those sorts of things. And the feedback was extremely positive about the product.
You should not make the assumption that if someone is using money transfer that they don't have a bank account. I think that's a fallacy that we only serve on banks, but really getting money from here to there in 10 minutes efficiently, safely, securely, conveniently.
Robert Dodd - Morgan Keegan
I've (funded) international money transfer and international watchman. So in the banking, it took three days and disappeared. I understand that you do it.
We think those 60 million-some cardholders in Mexico are an interesting market for us.
I think it's interesting that there is going be a question in timing of consumer adoption. I think that is always there. It could be deployed in different demographic on consumer. There could be some overlap. We could drive some different usage and some different consumer behavior as well. So I think it'll be very interesting to see how it goes.
I'd say the success in Guatemala proved that the card product works. That market was challenged because we only have one bank their in Mexico where it links all the Visa banks, and that makes usage and access to the service with that much more readily available to people. So we'll keep you updated.
Robert Dodd - Morgan Keegan
On a global kind of view, are you seeing any changes on any regulatory front in terms of maybe the local regulators starting to adopt strategies for not just changing cash to cash, but anything from cash to mobile or any of those types of solutions? Are the regulators actually keeping up with the market?
I think if you are in the financial services industry broadly, and specifically if you are in the money transfer business in U.K., a tremendous amount of attention the regulatory initiative all over the world. And that's at country level and here in the U.S. it's also state level.
I know you also remember when was that early '09 when Oklahoma instituted some changes and some tax. I know you saw our announcement that we now have a new Chief Compliance Officer, Phyllis Stimac. And our approach to this whole notion of compliance, regulatory, working with law enforcement, I would say we have taken a new approach from legacy MoneyGram where all that kind of really was embodied in one person. And I like that we have twin since that and we have three people, someone charged more with the security and law enforcement, the Chief Compliance Officer, and just this week we added someone who will head global regulatory initiative.
So I think that's just how seriously we take it. We want to be aggressive and represent not just MoneyGram, but the industries very well. And often, it's from lack of understanding.
And that is all the time we have for questions today. I'll turn the call back over to Ms. Patsley for any additional or closing comments.
Good day, everyone. Have a wonderful weekend. Good luck to you if you were coming to Dallas for the Super Bowl, because I think that most of the flights are cancelled.
Thanks for your interest. We look forward to visiting with you again. Take care.
That does conclude today's conference. Thank you all once again for your participation. Have a wonderful day.
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