Q4 2023 CPI Card Group Inc Earnings Call

Participants

Mike Salop; SVP, IR; CPI Card Group Inc

John Lowe; President and CEO; CPI Card Group Inc

Jeffrey Hochstadt; Chief Financial Officer; CPI Card Group Inc

Jaeson Schmidt; Analyst; Lake Street Capital Markets

Andrew Scott; Analyst; Roth MKM

Presentation

Operator

Welcome to CPI Card Group's third-quarter 2023 earnings call. My name is Auda, and I will be your operator today. (Operator Instructions)
Now, I would like to turn the call over to Mike Salop, CPI's Head of Investor Relations. Please go ahead.

Mike Salop

Thanks, operator, and good morning, everyone. Welcome to the CPI Card Group fourth-quarter 2023 earnings webcast and conference call. Today's date is March 7, 2024. And on the call today from CPI Card Group are John Lowe, President and Chief Executive Officer; and Jeff Hochstadt, Chief Financial Officer.
Before we begin, I'd like to remind everyone that this call may contain forward-looking statements as they are defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. For a discussion of such risks and uncertainties, please see CPI Card Group's most recent filings with the SEC. All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statements to reflect the events that occur after this call.
Also, during the course of today's call, the company will be discussing one or more non-GAAP financial measures, including, but not limited to, EBITDA, adjusted EBITDA, adjusted EBITDA margin, net leverage ratio, and free cash flow. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release and slide presentation we issued this morning. Copies of today's press release, as well as the presentation that accompanies this conference call, are accessible on CPI's investor relations website, investor.cpicardgroup.com. In addition, CPI's Form 10-K for the year ended December 31, 2023 will be available on CPI's investor relations website.
On today's call, our growth rates refer to comparisons with the prior year period unless otherwise noted.
And now, I'd like to turn the call over to President and Chief Executive Officer, John Lowe.

John Lowe

Thanks, Mike, and good morning, everyone. For today's call, I will give an overview and discuss our strategic priorities. Jeff will go into more detail on our 2023 results and 2024 financial outlook, and then we will open the call for questions. Let's start on slide 4.
As most of you are aware, I was named President and CEO of CPI Card Group in January, taking over from Scott Scheirman who announced his plans to retire mid-last year. I would like to take a moment to thank Scott. Under his leadership, our team delivered a remarkable turnaround over the last six years and established a strong foundation that we can build from as we begin the next phase of the company's growth.
CPI has a strong culture and values that have helped establish us as a trusted leader in the US payments space. And we have a great leadership team in place today. This team combines both experienced CPI leaders that have helped drive our success over the last several years, as well as some relatively newer hires to bring in additional outside expertise.
Among the experienced leaders, we have promoted Peggy O'Leary to Senior Vice President, Prepaid Solutions and Chief Development and Digital Officer. Peggy has been leading our prepaid business since 2022 and has been instrumental in driving our growth strategy in various areas of the business since joining CPI in 2015.
Peggy will be supported in business development by Rob Dixon, who is our Vice President of Business Development and Digital Solutions. Rob has been leading our product growth and innovation strategy for instant issuance, personalization, and digital solutions. And he and his team have been integral in expanding our product and solution sets, including our digital connections and solutions.
Last year, we also brought on two executive leaders from outside the company in newly created senior roles that report directly to me to further enhance our sales and operations activities. Toni Thompson joined us from RR Donnelley and is now our Senior Vice President of Debit and Credit Operations. Toni leads the teams responsible for ensuring the best quality for our customers for secure card, personalization, instant issuance, and print-on-demand.
JD Porter, who came to us from Fiserv, is now our Chief Commercial Officer. JD is responsible for all customer-facing activities for our debit and credit segment and is tasked with driving market share gains and providing the best customer service for our thousands of customers.
CPI's newly structured leadership team aligns with our strategy of building from our current foundation while expanding long-term opportunities and diversifying the business, which I will talk more about in a few minutes. First, though, I would like to address our financial results and initial outlook for 2024.
Certainly, 2023 was a challenging year. As we've discussed the last few quarters, in general, our customers were very cautious with their spending last year. Economic uncertainties, banking industry turmoil and inventory rationalization after our customers purchased large quantities, and [muted] supply chain concerns in 2022 all contributed to the cautionary spending in 2023.
-- record level for CPI -- reflect a 27% increase from prior year and a 32% increase in the debit and credit business. We anticipate the customer inventory rebalancing will continue into 2024 but believe the market will gradually improve over the course of the year.
For the full year, we expect to return to positive sales growth in 2024, with our initial outlook projecting slight increases for both net sales and adjusted EBITDA. We expect sales to be down for the first half of the year, with growth anticipated in the second half. Our sales outlook is based on discussions with customers, opportunities we are seeing in the marketplace, industry projections and analysis, and anticipated benefits from sales initiatives that we initiated in 2023. We are also encouraged by the outlooks of many of the large banks who generally are predicting a soft landing for the US economy.
We expect 2024 adjusted EBITDA to slightly increase. Growth will be impacted by investments to support our long-term strategy of growing and diversifying the business and comparisons with lower short-term employee incentive compensation in 2023. Longer term, we believe we can drive further operating leverage from sales growth and operating efficiencies.
Looking back at 2023, although our sales results were disappointing, we did take important strides that will help lay the groundwork for the future. We won additional business with both new and existing customers. We expanded our health savings account business and opportunity. We developed and introduced new metal card offerings. We introduced eco-focused solutions in the prepaid space. We expanded our Card@Once instant issuance installations to more than 15,000 locations. And we accelerated plans to diversify the business by launching digital push provisioning capabilities and exploring expansion of our instant issuance solution beyond financial institutions.
In addition, despite the sales and net income decline in 2023, we were able to more than double our free cash flow to nearly $28 million, thanks to improvements in working capital and tight management of capital spending. We also initiated our share repurchase program in the fourth quarter and made good progress executing against the $20 million authorization in the first couple of months of 2024. We'll go into more detail on 2023 results and our 2024 outlook in a few minutes. But first, let's turn to our strategy review on slide 5.
My goal is security forward and enhance the strategies that have made us successful with our current portfolio, while also expanding our addressable market over the long term by adding adjacent product and service offerings, including more digital solutions for our extensive customer base of thousands of financial institutions. My leadership team and I want to continue with key strategic priorities that have successfully driven growth and market share gains in our portfolio of secure cards, card personalization services, instant issuance solutions, print-on-demand, and prepaid solutions.
Specifically, we will continue to differentiate ourselves in the market by prioritizing a deep customer focus,, market-leading quality payment solutions and customer service, continuous innovation, and a market-competitive business model. These priorities have helped us become a leader in areas such as eco-focused payment cards, our software-as-a-service-based instant issuance solutions, and taper evident prepaid packaging solutions. Our focus on customer service, quality, and innovation gives us a strong value proposition in the market. And we have consequently established strong, long-lasting customer relationships.
We remain committed to winning business and gaining market share with our existing portfolio, but we also believe there are opportunities to expand into new adjacent areas. Scott and I, along with our teams, spent years building the foundation we have today, and CPI is now well positioned to invest in additional growth opportunities, which will also provide further diversification to our portfolio.
We serve a customer base of thousands of financial institutions, most of which are small to medium issuers who rely on third parties for many of their payment services. We believe we can provide added value to these customers through additional solutions and service offerings to help their customers with their payment needs. We are uniquely positioned for this, primarily due to our technology connections with the bank platform providers also noticed cores and processors that support the backbone of most banks in the US payment system.
We realized years ago when we were trying to penetrate the market with our instant issuance solution that we needed to make this solution easily adaptable, plug-and-play if you will, for our customers. This prompted us to begin deeper technology integrations with the bank platforms and processors that we and our customers connect with every day.
As we have grown our share in the US market, we have spent many years developing and investing in these technology integrations, which have allowed us to expand our reach in offering personalization services in our Card@Once software-as-a-service-based instant issuance digital solution to small- and medium-sized financial institutions across the country. Our Card@Once solution, for example, operates on a proprietary platform that allows us to provide a plug-and-play instant card issuance solution through these integrations. The value proposition to our customers has propelled the growth of this solution to more than 15,000 branches across more than 2,000 financial institutions today.
We are now investing in and leveraging these integrations we have built to offer digital push provisioning of service that complements the physical card personalization solutions we provide the customers. With push provisioning, we can additionally offer our customers the ability to let their customers seamlessly push their card credentials onto a digital wallet simply by pressing a button on their mobile banking app. Our vision is to provide push provisioning services as a digital complement to each physical card we help our customers issue, which assists them in moving their carts to top-of-wallet status, both physically and digitally. This is just one example of value-added services that will benefit our small- and medium-sized customers.
Similar to previous initiatives, such as eco-focused card rollouts, we expect adoption among our customers to ramp slowly but grow into a meaningful business over time. We believe our widespread technology integrations, along with the relationships and trust we have established with providers, both of which took years to build, are meaningful point of differentiation that allows us to expand beyond our traditional offerings and offer additional, easily adaptable solutions for our customers.
We also have opportunities to continue taking existing products and solutions to new types of customers, such as our expansion into health savings account payment cards and potentially selling instant issuance to customers outside of the traditional bank branch and credit union space. This could include any business that may have a need to issue payment cards to consumers at their locations.
As we refine our plans and strategies and roll out new solution offerings, we will give you more details, but I want to emphasize we remain very confident in the long-term growth of the markets where we currently participate and will continue to invest in advancing these long-term growth areas.
These cards in circulation -- if I take you to slide 6, these are updated three-year charts on the growth of US payment cards. Latest figures from Visa and Mastercard for cards in circulation in the US increased at a 10% CAGR for the three years ending September 30 and were up [8% compared to the prior quarter.]
Additionally, the trends towards eco- focused and higher-priced contactless cards remain strong. In 2024, one of our priorities will be to increase penetration of eco-focused cards to our thousands of small to medium customers. These cards have been primarily purchased by large issuers to date, which is similar to what we have experienced with the contactless transition. Mandates from card networks and initiatives from large banks to move to eco-focused cards over the next few years should further aid the rate of penetrations.
Contactless adoption also continues to advance, and Visa noted in its latest earnings call that it estimates tap-to-pay usage in the US reached 45% for in-person transactions last year. We estimate the contactless penetration of cards in circulation in the US was between 60% and 70% at year-end, up from 50% to 60% at the end of 2022. In short, we believe the US payment card market is very healthy, with positive secular trends still intact.
The market also remains recurring in nature, with a significant majority of payment card issuance relating to existing card replacement. Although customers increased inventory levels in 2022 and subsequently have been working them down, resulting in a sales decline in 2023, our sales still increased at a 9% compound annual growth rate over the past two years, with our debit and credit segment sales posting a 10% compound growth rate. Once we get through the remaining stages of the inventory rebalancing, we believe the market will return to more normalized patterns.
In addition to sales opportunities, other emphasis for us and our long-term strategy is to invest in technology and processes to further enhance and improve the customer journey and experience, drive growth, and increase operating efficiencies. This includes investment in a new state-of-the-art secure card production facility in Indiana. The lease on our current space in Indiana expires in 2026, and we are beginning a multi-year buildout and transition to a new facility which will provide more capabilities, capacities, and efficiencies.
In summary, our team is excited about the opportunities to grow in the future, both from winning business with our existing portfolio and what we believe will be a growing market and by adding new addressable markets by expanding into adjacent offerings.
I would now like to turn the call over to Jeff to go through our 2023 financial results and 2024 outlook in more detail. Jeff?

Jeffrey Hochstadt

Thanks, John, and good morning, everyone. I will begin my overview on slide 8.
The fourth quarter environment was generally what we expected as customers remained cautious with spending and continued to work down their inventory levels. The sales decline had a negative effect on margins as we lost operating leverage, although we continued to manage discretionary spending tightly.
Overall, fourth-quarter net sales declined 19%, net income increased 78%, and adjusted EBITDA declined 27% compared to the prior year period. For the full year, net sales decreased 7%, net income declined 34%, and adjusted EBITDA fell 8% as reductions in operating expenses helped to offset the impact of the sales and gross margin decline.
Net income for both the quarter-end and the year was negatively impacted by [the previously announced executive retention award], as well as higher tax rates. Despite the reduction in net income, we were able to significantly increase our free cash flow for the year, more than doubling last year's level due to improvements in working capital and tight management of capital spending. We were also able to maintain a relatively consistent net leverage ratio, ending the year at 3.1 times.
Turning to the detailed fourth-quarter results on slide 9. The 19% sales decline was comprised of a 22% decrease in our debit and credit segment and a 5% decline in prepaid.
Within debit and credit, the primary driver of the decline was reduced card sales. We saw this decline across contactless, contact, and non-EMV cards. Sales of eco-focused cards declined compared to some very large orders in the prior year period but did increase relative to the third quarter as we filled some good-sized orders in the fourth quarter.
Card@Once instant issuance sales increased in the fourth quarter compared to prior year, driven by growth in both solution sales and transaction processing fees, while other personalization services declined. The sales declines for both debit and credit and prepaid segments also reflect very challenging comparisons with the 2022 fourth quarter, when debit and credit sales increased 35% and prepaid grew 39%.
Gross profit in the 2023 fourth quarter declined 25% from prior year, and the gross profit margin decreased from 37.6% to 34.4%, although it did increase slightly from the third-quarter level. Compared to the prior year period, the lower sales levels negatively affected gross margin due to the impact on fixed costs within cost of sales, and margin was also impacted by higher material costs, primarily chips, partially offset by labor efficiencies in our prepaid segment.
SG&A expenses, including depreciation and amortization, were consistent with the prior year period, as lower selling expenses and professional services costs were partially offset by higher compensation expenses. Increase in compensation expenses was driven by approximately $3 million of accruals related to the previously announced chief executive retention award, including a stock compensation component, the higher headcount and salaries, partially offset by lower short-term incentive compensation expenses.
Our tax rate in the fourth quarter increased to 29.8% compared to 19.4% in the prior year quarter, which brought our full-year rate to 30.4%. The increased full-year tax rate for 2023 primarily reflects limitations on deductibility of executive compensation related to the executive retention package and favorable adjusted items in the prior year. We currently expect the 2024 rate to be fairly similar to the 2023 level.
Net income in the fourth quarter decreased 78% to $2.7 million, and adjusted EBITDA decreased 27% to $19.9 million. Adjusted EBITDA margin declined from 21.5% in the prior year to 19.3% as a result of the reduced sales levels and related lower gross margins. As mentioned, the net income decline also reflects the impacts of the executive retention award accrual, which is not included in adjusted EBITDA, and a higher tax tax rate, partially offset by lower interest expense.
Turning now to our full-year results on slide 10. For the full year, net sales decreased 7%, with the debit and credit segment down 8% and prepaid debit down 2%. Debit and credit sales declines primarily reflect lower eco-focused card sales compared to very large orders in 2022 and declines in contact cards, partially offset by increases in volumes of other contactless cards. For the year, contactless cards, including eco-focused cards, represented just over 80% of the volume of secure cards results from just over 75% in 2022.
Card@Once instant issuance sales increased for the year, driven primarily by transaction processing fees. Pricing contributed approximately 2 percentage points of growth in 2023, primarily related to actions taken in 2022.
Full-year gross profit decreased 12% from the prior year, with gross profit margin decreasing from 36.9% to 35.0%, driven by lower sales levels and increased material costs, partially offset by pricing benefits and lower freight costs.
Total SG&A expenses decreased by $2.7 million as reduced professional services expense more than offset an increase in total compensation expense. The total compensation expense increase was primarily driven by accruals of $7 million related to the TEO executive retention award and higher salaries and headcount, partially offset by lower short-term incentive compensation expense. The final $2 million accrual for the executive retention award will be incurred in the first quarter of 2024. Full-year net income decreased 34% to $24 million, and adjusted EBITDA decreased 8% to $89.5 million.
Adjusted EBITDA margin decreased from 20.5% in the prior year to 20.1%, driven by the reduced sales levels, partially offset by lower operating expenses. The net income decline also reflects the executive retention award and a higher tax rate, partially offset by lower interest expense.
Turning now to our segments on slide 11. I discussed the segment sales drivers earlier, so I will just discuss segment profitability on this slide. Income from operations for the debit and credit segment decreased 39% in the fourth quarter and declined 14% for the full year. Income declines in both periods were driven by decreased sales and higher material costs, partially off set by lower operating expenses.
Prepaid debit segment income from operations increased 35% in the fourth quarter to $7 million, with growth driven by comparisons with some large expenses incurred in the fourth quarter of 2022 and by labor efficiencies. Full-year income from operations for prepaid decreased 3% due to lower sales.
Turning to the balance sheet, with liquidity and cash flow on slide 12. For the full year, we generated $34 million of cash from operating activities and invested $6.4 million in net capital expenditures, which resulted in free cash flow of $27.6 million. This compared to the free cash flow of $13.5 million in 2022. We were able to double free cash flow despite the net income decline due to strong improvement in working capital and reduced net capital expenditures as we tightly managed all spending in the challenging sales environment.
On the balance sheet at year-end, we had a $12.4 million of cash and no borrowings outstanding on our $75 million ABL revolver. We had $268 million of senior notes outstanding at year-end, a reduction from $285 million at the end of 2022, as we repurchased $17 million notes in the open market during the course of the year. Our net leverage ratio of 3.1 times at the end of the year was relatively consistent with the 2022 level at 3 times despite lower adjusted EBITDA as we reduced our net debt.
Our capital structure and allocation priorities remain focused on maintaining ample liquidity, investing in the business, including possible strategic acquisitions, deleveraging the balance sheet, and returning funds to stockholders. As you recall, in the fourth quarter of last year, we announced a $20 million share repurchase program with the authorization expiring at the end of 2024. L ater in the quarter, we announced an agreement with our majority stockholder to purchase shares from them based on a multiple of our open market repurchases through March 31, 2024.
-- market program, buying back 250,000 worth of shares. Including what we have repurchased in the first two months of 2024, we have bought back more than $1 million in shares since beginning the program. Based on our agreement with our majority stockholder, we will repurchase from them in April and about equal to three times the repurchases we made in the open market from December through March with element at 98% of the average price of our open market repurchases in total, including that agreement through February, we have repurchased We're committed to repurchase more than $4 million out of the $20 million share authorization.
Turning to our to only 24, our financial outlook on slide 13. As John mentioned, we expect the customer inventory rebalancing to continue into 2024. Consequently, we expect first quarter sales to be similar to the fourth quarter of 2023 level over the course of the year. We believe the market will gradually return to growth that we currently expect. Sales declined in the first half of the year to be offset by growth in the second half. For the full year, we are projecting slight increases in both net sales and adjusted EBITDA. We are not projecting positive operating leverage in 2024 due to the relatively low sales growth expectations, and we are expecting cost savings initiatives to generally offset the impact of investments to support future growth in employee incentive compensation, returning to more normalized levels in the first quarter. We expect adjusted EBITDA margin to be lower than the fourth quarter of 2023, having minimal employee incentive compensation accruals in last year's fourth quarter.
Free cash flow for 2024 is expected to be five to $10 million lower than the $27.6 million we generated in 2010 three due to increased capital spending to invest for future growth. The CapEx increases included approximately $5 million of expected investment in the new production facility in Indiana, including incremental operating expenses and capital spending. We expect to spend about $20 million for this project, of which approximately $13 million will impact our cash flow over 2024 in 2020. Once complete, this will double our size in Indiana and result in about 10% increase in our overall real estate operating footprint. We expect free cash flow generation in 2024, ticker, mainly in the fourth quarter, primarily due to the back half weighted than sales growth as well as the impact of inventory build during the first three quarters due to purchase commitments we have in place for contactless chips.
First-quarter cash flow will also be impacted by the $5 million executive retention award payments. We currently expect the year end 2024 net leverage ratio to be between three and 3.5 times depending on cash flow generation and share repurchase execution among other factors. Overall, we expect 2024 to be a rebound year for the business once we clear the channel inventory, but rebalancing and expect to see more normalized in the back half of the year.
I will now pass the call back to John for some closing remarks on slide 14 on.

John Lowe

Thanks, Jeff. To summarize, 2023 was a challenging year for the market. We believe the first half of 2024, we'll continue to be affected by cautious customer spending, but we expect growth to gradually return over the course of the year. We are focused on continuing to win business and gain share with our existing portfolio while also expanding our addressable market over the long term. Through the introduction of adjacent product and service solutions.
We generated strong free cash flow in 2023 despite the decline in net income and our outlook projects to return to slight sales growth both in 2024, with declines in the first half of the year, offset by growth in the second half. Our leadership team is very excited about the future and proud of the strong team of employees we have in place, and I want to take a moment to thank all of our employees for their continued dedication and commitment to serving our customers.
Well, thank you for joining our call today, and we will now open the call for any questions.

Question and Answer Session

Operator

(Operator Instructions) Jaeson Schmidt, Lake Street Capital Markets.

Jaeson Schmidt

Hey, guys, thanks for taking my questions. I'm just curious if you're seeing any cancellations or some of these headwinds are just due to pushouts and delays in new programs.

John Lowe

Good morning, Jason. Good to talk to you get the. No, I wouldn't say anything related to cancellations. I would say more related to just cautious spending that remains in the market, continuous inventory rebalancing, if you will. But up, as we said on the call, we expect the first half to continue to kind of be a little choppy, a rebalancing to continue, but we expect in the second half to return to growth. But we're not necessarily seen any cancellations or reductions of orders, if you will, to more just overall slowness in the market.

Jaeson Schmidt

I've got chat. And then you noted expanding into some adjacent areas. Do you expect to see certainly sort of meaningful inroads this year? Or is this year for mortgage is more about learning about the market and some opportunities there?

John Lowe

She's a great question on. We've been working on adjacencies for a number of years. As an example, I think you've probably heard us in prior quarters talk about growth in the Health account space. That's HSA cards, flexible spending account cards. But the big areas that we're trying to grow into prospectively or push provisioning, essentially where we're pushing a digital credential to a customer's wallet. That's an area where we feel like we have differentiation in the market because we're essentially agnostic to waive a core processor that the small-to-medium bank issuers we work with use. So I wouldn't say it would be meaningful this year to the financials, but we definitely feel like over the longer term, it will be meaningful to the business. So So kind of kicking it off and growing, but not substantial this year.

Jaeson Schmidt

Okay. That's helpful. And then just last one for me and I'll jump back in queue and server. Good segue to it was on that push perturbation in either you guys expect to receive an incremental fee for this? Or is this just more an added service to increase the value proposition?

John Lowe

Yes. So the economics of it are similar to Dime unit cost for card sales, NAM, you're essentially adding on additional service. So every time someone pushes that digital credential to their wallet, we are earning a fee off of that a processing fee, if you will, or similar to what we do within our Card at Once instant issuance solution. So think of our Card at Once instance, instant issuance solution and how we have transaction processing fees that occur every day across our 15,000 branches now pushed provisioning. It is a similar kind of economic animal. If you will see every time someone pushes to their wallet, we get a fee.

Jaeson Schmidt

Okay, perfect. Appreciate the color, guys. Thanks a lot.

Operator

Andrew Scott, Roth MKM.

Andrew Scott

Good morning and thank you for taking my questions. Are First one for me. I was wondering if you could provide a bit more details around the new our Indiana facility and I think accomplished quantified the potential capacity expansion. Sounds like then building into a double the size of the existing facility on that. Any issues the details around the build out time line might be helpful as well.

John Lowe

Good morning. Well, all up. I'll give an overview and then handed off to Jeff, our Indiana facility. We've been in whenever they do a great job for us. That's a facility where the leases expiring in 2026, it gives us an opportunity to really move that facility. But in doing so, build out what I would call a state of the art facility, that's not efficiencies. It's both digital and physical kind of enablement, if you will, that tie everything together. The plants and ultimately will double our capacity in Indiana. But keep in mind, the expansion that we're doing in Indiana is roughly 10% of our overall footprint. So it's definitely a growth in capacity, but it's it's not significant to the overall business, but it will be a good growth to support our scorecard business over the longer term.

Jeffrey Hochstadt

Yes, hi, Andrew. This is Jeff, where we are really excited about Indiana and the expansion opportunities there. So on, as we stated, it will, it will probably be about a $20 million investment over the next several several years. About $30 million of cash flow impact over the next two years. And we'll probably be in that facility at the end at the end of 2020, 2025. So on a couple of years. And that's that's that's really the time line. We're starting to build it out now, but that's probably when it will be ready.

Andrew Scott

Great. Thank you for the year and the color. And then second one for me. Can you kind of speak to the long term potential ecofriendly cards? Are you guys have seen really good momentum with the large issuers are, but I'm curious as to how you had discussions with the smaller issuers and gone to date and that kind of just as adoption of the ecofriendly cards increased, how this may impact in our Company margins and profitability?

John Lowe

Yes. So it goes a great space for us. I mean, we we started selling you go into the market on 2019. We did that was one of the largest issuers in the US. We are, we believe, a leader in the Eagle focus space in the U.S. selling more than 100 million cars. We don't update the stats every single quarter, but into the US over time, Tom, if you think of the large issuer base, similar to what's happened in the contactless transition, the largest issuers move quickly. We've seen a great success in that space. Now what we're doing, one of our big goals in 24 is to push on penetrate within our small to medium issuer base. And just to keep in mind, if you look at our Debit and Credit segment broadly, the majority of our revenue actually comes from those small to medium issuers. So we expect the transition to take over time similar to the car tacos transition. But we do have a significant number, but what I would call small to medium issuers who were interested in the product and want to buy the product, we have been selling it on a smaller scale, if you will, but it will be a benefit to our overall, we believe our market share our way to differentiate in the market, but also all of our Eagle focused products for the most part, our contactless and premium products, if you will. So you can also generally speaking, charge either the same and offer a contactless card or sometimes anymore.

Andrew Scott

Great. Well, thanks for the color, and I'll hop back in April.

Operator

Thank you. And that concludes today's CPI Card Group fourth quarter earnings call, and thank you for joining and have a good day.