Phoenix Education Partners I Stock

Ladies and gentlemen, good afternoon, and welcome to Phoenix Education Partners Third Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Beth Coronelli, Vice President of Investor Relations. Please go ahead.

Thank you. Welcome to the Phoenix Education Partners Third Quarter Fiscal 2026 Earnings Conference Call. Speaking on today's call are Chris Lynne, our Chief Executive Officer; and Blair Westblom, our Chief Financial Officer.

Before we begin, I would like to remind everyone that certain statements and projections of future results made in this presentation constitute forward-looking statements that are based on current market, competitive and regulatory expectations and are subject to risks and uncertainties that could cause actual results to vary materially. Listeners should not place undue reliance on such statements. We undertake no obligation to update publicly any forward-looking statements after this presentation. The risks related to these forward-looking statements are described in our filings with the SEC, including our most recent Form 10-K, Form 10-Q and other public filings.

We will also discuss certain non-GAAP financial measures. You should consider our non-GAAP results as supplements to, and not in lieu of, our GAAP results. Reconciliations to the most directly comparable GAAP measures can be found in our earnings release and SEC filings. Unless otherwise noted, comments in the call will focus on comparisons to the prior year period. We also direct you to the supplemental earnings slides provided on the Phoenix Education Partners website.

I'll now turn the call over to Chris.

Thank you, Beth, and good afternoon, everyone. We appreciate you joining us today as we discuss our third quarter fiscal 2026 results and the continued execution of our long-term strategy. Guided by our mission, we remain focused on helping students achieve meaningful educational and career outcomes through flexible and affordable programs designed for working adults. The pace of change continues to accelerate as artificial intelligence reshapes how people work and the skills employers need. This environment aligns directly with our long-standing focus on working adult learners. For nearly 5 decades, University of Phoenix has helped students adapt, grow, and succeed through periods of economic and technological transformation.

Today, we are building on that legacy by continuing to enhance the learning experience, incorporating employer-informed curriculum and preparing learners with in-demand skills, creating greater opportunities for career mobility. As we celebrate our 50th anniversary this year, we are reminded that our ability to evolve alongside the needs of learners and employers has been one of our defining strengths. That same commitment to innovation and adaptability continues to guide our strategy today.

Turning to our results. The third quarter reflected continued progress across our strategic priorities. Revenue and enrollment were generally consistent with prior year, supported by continued strength in retention and healthy growth in employer-supported enrollment. Retention remains one of the strongest indicators of value students place on the University of Phoenix experience. The sustained improvement we've achieved reflects multiyear investments across the learner journey, including technology-enabled support, personalized engagement, flexible learning pathways and skills-aligned curriculum. Together, these efforts continue to support student retention and the long-term durability of our enrollment base.

During the quarter, we accelerated the successful launch of our Built for Real Life campaign, an evidence-based omnichannel campaign that highlights our differentiation through the attributes working adults value most, exceptional flexibility, affordable tuition and practical career-relevant education, all supported by consistently high levels of student and alumni satisfaction.

At University of Phoenix, our AI strategy is centered on 3 priorities: elevating the learner experience, equipping students with the AI skills employers increasingly value, and enhancing how we operate across the university. During the quarter, we made exciting progress expanding AI-enabled learning and AI skill development for students, which I'll discuss in more detail later in my remarks. We also continue to scale AI to drive operational efficiency across the university, including the launch of our One Team Assistant, which provides AI-generated summaries, including status and next-best actions to help our advisers best support our students.

Our students continue to benefit from skills aligned curriculum. To date, students have earned more than 1.1 million digital skills badges, providing another way to demonstrate verified, workforce relevant skills to current and prospective employers.

We continue to see growing demand for learners and employers for education aligned with evolving workforce and technology needs. Approximately 36% of our third quarter enrollment came through employer-supported relationships, up from approximately 33% a year ago, reflecting the growing alignment between our educational offerings and employer needs. This alignment is reflected in feedback from employers. I'm happy to report that results from a recent employer research survey conducted by The Harris Poll indicated that 98% of employers surveyed reported overall satisfaction with University of Phoenix graduates.

During the quarter, we further expanded our work with employers to support upskilling, career mobility and talent development. University of Phoenix was recently recognized by Wabash, a New York Stock Exchange-listed provider of end-to-end supply chain solutions, as a 2025 platinum supplier for its collaboration in supporting workforce development and operational priorities. We believe this recognition reflects the value of helping employers align learning, skills development and business needs while helping organizations build the workforce capabilities they need to succeed.

Looking ahead, we will continue expanding our academic portfolio to meet evolving workforce needs with new offerings planned across several high-demand disciplines and more flexible pathways designed to make degree completion faster and more affordable. This includes the approval and planned fall launch of one of our first 3-year bachelor's degree paths in the College of Social and Behavioral Sciences and Criminal Justice Administration.

In today's workforce, preparing learners for an AI-enabled workplace is central to helping them develop practical career-relevant skills they can apply throughout their careers. Recent findings from the University of Phoenix Career Institute Career Optimism Index underscore the importance of continuous learning and AI skill development. The study found that about half of workers say AI increases their confidence in pursuing new career opportunities, while more than half report greater confidence in developing new skills and adapting to evolving workplace technologies.

Our goal isn't simply to teach students how to use AI tools. It's to prepare working adults to succeed as AI continues to transform the workplace. We are integrating generative AI throughout our curriculum to help students develop practical AI skills they can apply on the job. We're continuously expanding AI-powered learning experiences and now offer AI skill building modules in every course. We are currently enhancing teaching and learning through support tools and advanced AI training for faculty, expansion of our Socratic dialogue tool that simulates real-world professional scenarios and have an AI agent that provides 24/7 support for writing and math.

Earlier today, we announced a collaboration with OpenAI, an exciting opportunity to accelerate this work. Working with OpenAI, we plan to advance AI-powered learning, explore collaborative research and expand access to AI technologies that help working adult learners develop the skills they need for an increasingly AI-enabled workplace. As part of this relationship, we plan to provide eligible students with access to ChatGPT, giving them a hands-on experience with AI as they continue developing those skills throughout their education.

As search and discovery continue to rapidly evolve, we remain focused on how prospective learners explore, evaluate and ultimately choose University of Phoenix as they look for ways to advance their education and careers. We believe our strong brand, leading position across social media among our peer set, career-relevant content, media expertise and broad digital presence provide a solid foundation in this changing environment. This foundation has provided strong support for adjustments to our digital acquisition strategies to meet the evolving needs of prospective learners who increasingly use AI in their search process.

The recent launch of the Built for Real Life campaign has been one of our more successful campaigns and is an important evolution in how we communicate what differentiates University of Phoenix. It has been effective at maintaining strong demand for our brand and is designed to provide authoritative, evidence-based content around the most important decision factors in a manner that influences AI-powered search. We will continue to adapt our approach to meet learners wherever they are making decisions about their education.

I also want to briefly touch on the Department of Education's recent fraud prevention initiatives. As I've discussed on previous calls, we support the department's efforts to strengthen fraud prevention and protect the integrity of the federal student aid system. Importantly, the department's enhanced controls and the recent initial data we've reviewed from the department has reinforced our confidence in the effectiveness of the fraud detection and identity verification processes we already had in place.

Before I close, I'd like to welcome Robert Brackenbury to the Phoenix Education Partners Board of Directors. Robert brings extensive leadership and governance experience, most recently serving as Deputy Chief Investment Officer for the State of Michigan Retirement System, where he helped oversee more than $170 billion in pension and trust assets for a fund with a long-term track record of outperformance amongst large public pension funds. Combined with a decade of higher education leadership experience, Robert brings valuable perspective, and we look forward to his contributions to our Board.

As we look to the future, an important part of our growth strategy and capital allocation approach is evaluating opportunities that complement our core business, enhance our ability to serve learners and employers and strengthen our long-term value proposition. Playing a key role in leading these efforts, I'd also like to welcome Michael Cochran as our Senior Vice President, Corporate Development. Michael brings extensive transaction and strategic advisory experience, most recently as an Executive Director at Morgan Stanley, where he served as a key leader supporting the company and its return to the public markets.

As we enter the final quarter of 2026, we remain focused on executing against our strategic priorities, supporting student success, strengthening employer relationships and helping learners build the skills they need to succeed in a rapidly evolving workforce. The progress we continue to see in student outcomes reinforces our confidence in our strategy. Supported by a strong financial foundation, disciplined execution and continued investment in our students, we remain confident in our long-term trajectory and our ability to create value for learners, employers and shareholders.

With that, I'll turn the call over to Blair.

Thank you, Chris. I'll begin with a review of our third quarter financial results, followed by updates on our balance sheet, capital allocation and fiscal 2026 outlook.

For the third quarter, net revenue was $271.8 million compared to $271.7 million in the prior year period. Average total degreed enrollment increased 0.6% for the third quarter to approximately 85,300 students compared to 84,800 in the prior year, with continued strength in retention. Net income attributable to Phoenix Education Partners was $39.2 million or $1.01 per diluted share compared to $53.8 million or $1.42 per diluted share in the prior year. The decrease was primarily driven by higher share-based compensation expense associated with our IPO, which increased $7.8 million compared to the prior year period, an increase in advertising expense and higher strategic alternatives, restructuring and other expense.

Adjusted EBITDA for the quarter was $78.1 million compared to $83.4 million in the prior year, a decrease of 6.4%. Adjusted diluted earnings per share was $1.43 in the third quarter compared to $1.57 in the prior year. Adjusted EBITDA margin for the third quarter was 28.7% compared to 30.7% in the prior period, primarily driven by higher advertising expense, which increased $6.6 million in the third quarter to support the accelerated launch of the Built for Real Life campaign. This was partially offset by lower bad debt expense due to higher retention.

For the first 9 months of fiscal 2026, net revenue was $756.3 million, an increase of 0.9% compared to $749.8 million in the prior year. Average total degreed enrollment increased 2.2% for the first 9 months to approximately 84,500 students compared to 82,700, reflecting continued strength in retention. Net income attributable to Phoenix Education Partners was $65.4 million or $1.69 per diluted share compared to $116.4 million or $3.08 per diluted share in the prior period, with the year-over-year decrease primarily due to share-based compensation expense associated with our IPO.

For the first 9 months, adjusted EBITDA increased 1.2% to $188.1 million compared to $185.8 million in the prior year. And adjusted diluted earnings per share was $3.40 compared to $3.49 in the prior year. Adjusted EBITDA margin for the first 9 months was 24.9% compared to 24.8% in the prior year period. These results reflect the increase in net revenue as well as lower bad debt expense, primarily due to higher retention.

Our results continue to benefit from strong retention trends and disciplined cost management, which we believe support long-term margin expansion, scalability and strong cash generation. We continue to maintain a strong balance sheet with substantial liquidity and no outstanding debt. As of May 31, 2026, our cash and cash equivalents and marketable securities were $269.4 million compared to $194.8 million as of August 31, 2025. The increase was principally due to $116.7 million of cash generated from operating activities, which was partially offset by $17.4 million of cash paid for dividends and dividend equivalents, $15 million of capital expenditures, as well as net cash paid to settle share-based awards and common stock repurchases.

Our capital allocation priorities remain focused on investing in student outcomes, technology-enabled capabilities and strategic growth opportunities while maintaining financial flexibility and returning capital to shareholders. In April, our Board of Directors approved and we announced a $50 million stock repurchase program. In the third quarter, we repurchased approximately 135,000 of our common shares for an aggregate purchase price of $4 million at an average of $29.29 per share. As of quarter end, we had approximately $46 million remaining available for repurchases.

Today, we announced another quarterly dividend of $0.21 per share payable on August 14. We expect to continue to pay quarterly dividends in subsequent quarters of $0.21 per share which equates to $0.84 per share annually, subject to Board approval. We also continue evaluating select M&A opportunities that complement our workforce-aligned capabilities, learner experience, and employer ecosystem while maintaining financial discipline.

Turning to our fiscal 2026 outlook. Based on our expectations for the remainder of the year, we anticipate net revenue will be in the $1.02 billion to $1.025 billion range. While the revised outlook primarily reflects the transitional impact of our digital enrollment strategies as we adapt to an evolving search and discovery environment, we remain confident in the long-term demand for University of Phoenix and our ability to successfully execute our strategy. We are also raising and tightening our fiscal 2026 adjusted EBITDA guidance and now expect adjusted EBITDA to be in the range of $246 million to $250 million. This updated outlook reflects disciplined cost management and the benefits of our strategic and operational initiatives, including technology and AI-enabled capabilities that continue to support efficiency, scalability and student outcomes.

We continue to operate from a position of financial strength, supported by healthy cash flow generation, a debt-free balance sheet and disciplined capital allocation. These attributes provide the flexibility to continue investing in our strategic priorities while supporting long-term value creation.

I'll now ask the operator to begin the question-and-answer session.

[Operator Instructions] And our first question comes from the line of Greg Parrish with Morgan Stanley.

Maybe just help level-set here, like what -- especially on enrollment growth, what's changed versus the initial expectations that you've had? What's going on in the market that maybe was different than 9 months ago? I know you talked about search changes, talked about the last quarter. I think that's the only thing you mentioned again today. I mean, is this all search changes or maybe anything else to call out? And what's structural versus what's temporary? Maybe just help us there.

Thanks, Greg. I'll take that question. Really, first and foremost, I think it's important to point out that we're not seeing weaker demand for our programs. In fact, demand for University of Phoenix's brand remains strong. One of the measures we follow for years is branded search on Google. And we can see that we continue to be one of the top 2 brands across the competitive set, and we are top in terms of growth year-over-year. So the interest is there.

As you alluded, what we are seeing is a change in how prospective students evaluate their options. We're seeing longer and more iterative evaluation processes as AI-powered search becomes more a part of the evaluation journey. And that's really the driver of the near-term impact. And what I'll say about is we've been preparing for the shift for a long time. So this is a transition. For example, we talked about our Built for Real Life campaign that we accelerated into Q3. That campaign is designed to make our differentiators highly visible. There's many claims across the most important attributes that adult learners care about from exceptional flexibility, affordability, transparency, career-relevant education and really consistently high student and alumni satisfaction.

And that is one of the things we're doing to make sure that those evidence-based differentiators are put out on the digital platforms in a way that the AI-powered search picks it up and presents us favorably based on those differentiators with our competitors. And so we've been doing a lot alongside those types of issues, but that has created near-term impact.

Now long term, strategically, we believe this change in the search environment is going to be a favorable thing for institutions that have built credible evidence around their differentiation. And that's where we see ourselves well-positioned in the market. So we see this as a transition and it's a shift that we've been working through, which is why we modestly reduced our revenue outlook for the year.

Now in terms of other factors, it's probably worth mentioning that we did have a very temporary level of friction on enrollment related to, I mentioned in my remarks, the unusual enrollment activity. That's all really good news for us. We've talked about the control structures we put in place.

Those continue to be validated. But one thing that did happen this prior quarter that I've mentioned in previous calls that we were anticipating is the Department of Ed has rolled out their system of new detection and verification controls as part of the FAFSA process. And in that process, they have risk identifiers now that they share with institutions that are signals at different levels of risk around potential unusual enrollment activity or what they call potential identity fraud or ghost students.

The good news is anything that they flagged in their process, and they flagged all of -- or they looked at all of the 2026 and 2027 applications at which, because we're a non-term continuously enrolling institution, we actually had over 70,000 applications that had been filled out by either current students or prospective students in the enrollment process. Not all of those students by any means were flagged, but the ones that were flagged were very consistent with our internal control.

So that was a validator that we've got robust controls and as does the department, which is a good thing. But that did create some friction because with the new regulations, when students are flagged, institutions are required to take them through a process. And because they did a look back, we had sort of a one-time process at which we had to work through these students. And that's behind us. And I wouldn't say it was anything meaningful. I didn't mention it in my remarks as a result. But given you asked the question if there was anything else related to what we communicated, that was another factor.

Yes. Yes. Okay. Fantastic. And maybe like just taking all that forward and then maybe just a refresh on like thinking of how you think about and your team, the long-term growth rate of this business. How do you see that evolving? And then as we go into 2027, do you expect to be within your long-term framework in 2027?

Yes. Well, we're not giving the outlook for fiscal ' 27 on this call. We will be sharing that on our next earnings call. But in terms of the long-term outlook, we still feel that our previous communications on the long-term outlook for the business are consistent with today. We are in the middle of a shift in how search is conducted. But it's worth saying that, like, we've set a very strong foundation. Most importantly, our brand demand is high, and that's really a paramount matter. And then it's really about setting up our differentiators in a way that search engines that are being utilized by prospective students can pick up our differentiators. And like I said earlier, we think over the long term, this is actually going to be a strength for universities that have clear differentiators that they've earned in the marketplace.

We see satisfaction across all the key attributes that adult learners care about, most importantly, the relevancy of our curriculum. So we think that, that's going to play out in a positive way over the longer term. And so we feel good about where we're at. The other thing worth mentioning in terms of the near-term impact is we have other channels that continue to perform very well that have no impact on AI search.

We're seeing healthy growth in our B2B channel. We continue to expect that to grow because we've not only been very effective with our account management processes across our 2,500-plus employers. We continue to build more strategic relationships with employers like the example I shared with Wabash in my remarks. And so that will continue to drive success.

We also see very healthy demand continue to come to the university. And we've continuously improved our ability to meet that demand effectively with personalization, leveraging AI and technology throughout the enrollment process where we're seeing continued improvements in conversion of that demand into what become new students for the university. So all of those things give us confidence in our long-term expectations.

Great. And if I may just slip in one modeling -- quick modeling question, and then I'll pass it off. Just stock-based comp coming out of the IPO is a little elevated. This quarter it was 3%. Maybe just help us what's the right level of stock-based comp as a percent of revenue to think about just in the go-forward model?

Greg, it's Blair. Thanks so much for the question. So our Q3 2026 share-based comp expense was $8.5 million. And as mentioned on previous calls, a little less than half of SBC is associated with the modification of pre-IPO stock options, not new stock. And the majority of the remaining expense is associated with shares granted at IPO or post-IPO. When you take a look at year-to-date expense of $47.6 million of SBC, that includes a number of different components. Approximately $31 million is related to the modification of stock options, of which $4 million was incurred in Q3.

Then you have approximately $3 million in unrestricted share grants to a very limited number of employees and less than $1 million from pre-IPO awards. The only ongoing component of that is approximately $13 million from newly granted awards at IPO or post-IPO that generally vest over 3 years. And then as always, I direct you to our fiscal '25 Form 10-K and our Q3 '26 Form 10-Q. You can see a significant portion of noncash SBC is due, as I mentioned, to the monetization of pre-IPO options.

And our next question comes from the line of Jasper Bibb with Truist Securities.

Just wanted to get a little bit more color on the enrollment growth rate. I think in the prepared remarks, you talked about strength in retention kind of supporting the 1% enrollment growth. I know you don't disclose it, but can you provide, like, a little bit of color on what you're seeing in new starts so far this year and in the past quarter?

Yes. Well, we don't disclose new starts. But one thing that I'll point out, Jasper, that we've mentioned on past calls is from a revenue growth perspective, we did have a higher propensity of students that didn't retain beyond the earlier courses last year. I kind of walked through the background on that and shared that we were not experiencing that coming into this year. And that has been consistent. And the impact of that from a year-over-year revenue growth rate was anticipated to be higher in Q2 and Q3. So that masks a little bit of the actual growth from a revenue perspective.

In terms of new student growth, we feel good about the demand we're seeing. We do have this near-term impact as we have been navigating some of these early changes in search. But as I said earlier, we feel good about the demand we're seeing. We also feel good about the response that we've had. I mean one thing that's worth mentioning is we planned for a lot of the response for a long time right now, knowing that search is changing. And we're seeing the impact of the foundational changes we put in place to make sure that we're getting picked up properly with our differentiation in AI-powered search. And we manage that across thousands of prompts, and we can see the traction as we shift into this new environment.

So we see strong demand. We're seeing good progress there. And I would just caution you to look at the growth rate overall for revenue this quarter as being a little bit masked by that year-over-year issue I mentioned earlier.

And then I had an expense question. I just -- I think the advertising expense grew about 16% year-over-year in the quarter. I know that can bounce around a little, but can you just talk about maybe the drivers of the increase in advertising this quarter? Was that kind of related to the AI shift you've talked about? And do you expect, I guess, the spending on advertising to moderate at all in the fiscal fourth quarter?

Yes, certainly, Jasper. We incurred $6.6 million higher advertising expense in Q3 versus the same period prior year, and that's as we adapt to changes in how prospective learners discover, evaluate, and ultimately choose higher education. We did ultimately make the decision to accelerate the Built for Real Life campaign, which is designed to differentiate the University of Phoenix for working adults while strengthening the top-of-funnel awareness and consideration. And we believe this and other marketing initiatives will support long-term growth in enrollment. That, coupled with anticipated expansion of our direct channels, including employer affiliated enrollment, we believe these investments will enhance our acquisition efficiency over time.

One thing, Jasper, that's probably worth mentioning is the acceleration of that Built for Real Life campaign, that was actually pretty phenomenal work across our marketing team. The reason we did that. That was planned to be launched later in the year, closer to fall. But because it was built on broad evidence supported claims, we decided we should launch it sooner given the impact of AI-powered search because not only has it -- and it's been very effective at driving strength in our brand demand, but it's also built and designed to help optimize for AI-powered search. So that was -- we did spend higher, but part of that was accelerating that decision earlier in the year.

And our next question comes from the line of Alex Paris with Barrington Research.

First question is back at the time of the IPO, and I'm not sure if you published it since, you sort of broke down enrollment by fields of study. At the time, 63% was business and IT. I look at it as 3 buckets: 31% health care and related that would include social and behavioral as well as health care professionals and nursing and then 4% education. I'm wondering year-to-date or in the third quarter or however you like to answer the question, where has been the area of strength and areas of less strength?

Yes. Thanks for the question. Yes, we're seeing -- we have a diversified portfolio of programs. They're aligned in demand fields. There's different levers that seem to contribute more to growth at different periods of time. I don't have -- and maybe Blair does have a recent breakdown, but it's pretty similar to what you described. However, we have seen stronger growth in health care. I mean the macro trends there have been strong.

I think the closest barometer of what's going on in the marketplace is really looking at where we're seeing growth with our employers. Health care is just under 1/3 of our B2B relationships. Now that's health care organizations. We're seeing strong growth in our health care-related programming, but we're also seeing growth in other non-health care-related programming as a result of that part of the sector growing. And so that's another element that we see is when you're in growing verticals, and we have several, health care being one of them, that are growing healthily.

You see growth of, really, all of our programs in those verticals. But I would say health care, the areas that you mentioned have been growing at a higher rate than other programs. But the skills-aligned curriculum, and we're seeing growth across different parts of our portfolio as well across the B2B network. And we think that's reflective of both the demand we're seeing on B2C or demand that we expect to see in certain parts of B2C as the differentiators that employers are responding to become clearer to the broader consumer base.

Great. That's helpful. I appreciate that. And then just a question and comment on guidance. Given your updated guidance, revenue slightly below your prior guidance and adjusted EBITDA narrowed and slightly above your prior guidance. I think the year is going to kind of come in where you said it was last quarter. You had said -- if you look at the midpoint of the new guidance, it's at the low end of the prior guidance. And if you look at the midpoint of the updated guidance, it's at the high end of the prior guidance. And that actually suggests 3.4% revenue growth in the fourth quarter, 5.8% adjusted EBITDA growth in the fourth quarter at the midpoint. So it looks like we're kind of at that long-term growth algorithm, mid-single-digit top line, maybe a little bit below and then mid-single-digit plus earnings. Is there any reason to think that long-term algorithm wouldn't hold for fiscal 2027?

That's a very good breakdown of the facts, but we're not providing an outlook for fiscal '27 now. So I mean, for now, I'll just hold to my comments earlier that we're comfortable with the long-term expectations that we've indicated previously. But we're going to close out the year here and be ready to share more about fiscal '27 in the next earnings call.

Great. And then the last question, just to sneak in here is regulatory. And we've talked about regulatory on the prior several calls with the One Big Beautiful Bill, negotiated rule making and then some of those rules like grab loans and earnings accountability going into effect July 1. There were some positives there, kind of a delayed effectiveness on earnings accountability. But more recently, there's been some word out of the Department of Education that they're not done. They're going to do some more negotiated rule making this fall, one of which is taking a look at the 90-10 rule, which applies only to for-profits. With your number at about 88%, I know that's comfortably below the limit. What are your thoughts or what are you hearing about 90-10 changes coming?

Yes. I think I'm hearing similar things that you are. I'd hate to speculate on 90-10, but I do know that there is some acknowledgment that the ratio is worth revisiting. I think there's pretty common acknowledgment that we've heard in that any kind of accountability metric should really be applied against all of higher ed, and 90-10 is currently not handled that way. So 90-10 is -- I hate to be critical of a metric, but it doesn't necessarily align with student success in the way that we would prefer. So there is some hopeful discussion going on that's consistent with what you've been hearing.

And our next question comes from the line of Jeff Silber with BMO Capital Markets.

I wanted to circle back to the discussion at the beginning about how students are changing the way that they look for institutions. It's a two-part question. One, can you give us a rough estimate of what percentage of leads are now coming from LLMs and how that's changed over the past year? And then two, you mentioned a few times that you need to position yourself so the LLMs pick up your differentiators. Can you give us, again, some examples about how you are doing that and how successful you've been there?

Thanks, Jeff. Well, let me hit the second question first. So we're doing a lot of things around making sure that discovery is optimized. Best practices have emerged and continue to emerge across any kind of digital platform or any method at which you put content out into the universe on your website or through digital channels. Social media has become very much a rich source for the AI-powered LLMs. Google has pointed out YouTube as being a more primary source. I know I mentioned that on the last call. Video is becoming a more effective and primary source for the LLMs. And so we are staying on the sort of, I would consider leading edge, of where the market is going.

We work closely with Google. We now have this partnership and collaboration that we announced today with OpenAI to know where is the market going as well as working with outside experts. And we feel like we're well positioned across all those things in areas. We're #1 in social media. We've seen really as some examples that you asked for on YouTube and our social media and content generation. We're seeing a lot of progress. And we measure this stuff carefully.

There's thousands of prompts that are really important to adult learners. We monitor those regularly and correlate them to these activities to know what is working, and that's where we're seeing the traction. LinkedIn is another rich source. LinkedIn is a great source for us. We have a very strong engagement. A lot of that engagement is built around clear differentiation, not only the claims that we can make across critical attributes that matter to adult learners, but our alumni and students engage around their experience at the University of Phoenix, and that more and more gets picked up by the LLMs. In fact, we have 750,000 people on LinkedIn that report either graduating or having attended the University of Phoenix.

So there's many more examples that I can give you, but we've got a pretty broad set of initiatives that are really optimized to increase discovery. And again, over the long term, we think this is going to be a very positive thing because if you have clear differentiation, that's going to be a benefit as AI presents that differentiation more and more clearly to prospective students over time.

And then in terms of the percentage of leads, it's difficult to give you a percentage. What we are seeing is -- I mean, we have a tremendous amount of demand that comes to us. And what we do is we look at how that demand engages with us at a very detailed level. So some of the changes, just to give you an example, is we may have demand that historically came through a search channel and then they came to our website and they may start an application. The change may be that we have demand come directly to our website. We can't point in all cases to the LLM that they came from. And then we see that person come to the website multiple times before they start an application.

So when I say that it's become a more iterative and elongated process, we're seeing that type of behavior with the percentage of the enrollment. So it's pretty intensive. We can see the visibility, which is good because we can react to it and make sure that we're providing experiences that help us provide those incoming prospective students with what they need and respond to the changes in how they shop. But I can't necessarily give you a percentage. It's not necessarily a huge percentage that has shifted, but any shift in the process is something that we need to adapt to in the near term, which is what's occurring right now.

And our next question comes from the line of George Tong with Goldman Sachs.

You talked about initiatives to make sure your differentiation is getting picked up by AI-powered search. How long do you think it will take before AI-powered search produces results that are similar to or better than traditional search?

George, that's a really hard question to answer. The -- I really would be speculating. It's -- what I can say is -- and I think this has been pretty encouraging sort of early days here is we can see the impact of the things that we're doing to improve how we show up, meaning the number of citations, how often our brand shows up. And so I think that encourages me that this will be a transition that will start to be more data-driven in how we discuss time lines and when we'll get there, but it's still pretty early. So it's hard to give you a view of when this will get to a world that was similar to how search had been conducted in the past.

Got it. Okay. That's helpful.

I think one thing that is probably pretty obvious is one of the benefits of how search occurred before is it was purely on your ability to market claims that you can make. And for us, that has always been a strength. It continues to be a strength because we have strong evidence-supported claims, and we've been great at marketing those claims. In the future, I think that still is a huge contributor. But the other contributor is really the AI search is going to show comparisons of institutions based on what they deliver for us to their students or for employers. And that's where I think the real opportunity is it's not generated by your marketing, it's generated by your outcomes. And our outcomes, we think, position us well for how that matures over time. So I think that's just worth reinforcing.

Got it. That makes sense. And then you mentioned the Department of Education rolled out their system of detection and verification controls as part of FAFSA. What's the likelihood that the Department of Education rolls out additional systems of detection that could impact the funnel and onboarding process?

I think the department is, one, likely to continue to bolster and enhance their control structures, either to make them more efficient or to adapt to an evolving sort of threat environment. We've been doing that for quite some time now. You have to be adapting. You have to constantly be improving. But when I look forward, I actually think anything that they do that creates responsibilities for the institution is likely mitigated by the fact that now the department has frontline defense and control mechanisms that didn't exist prior to rolling these out.

So prior to them rolling this out, like we were fully dependent on our systems and dealing with the incoming threat actors with our control structure. Now we have a frontline defense and those same threat actors have to go through the department before they even arrive at our doorstep. So I think that's likely to reduce any kind of friction likely meaningfully into the future, if I were to speculate.

[Operator Instructions] And our next question comes from the line of Rob Sanderson with Loop Capital Markets.

Chris, I wanted to ask about healthy growth in your B2B partnerships that you had mentioned earlier in the call. A couple of questions on this. Is the expansion of your managed accounts having kind of the expected stimulus on enrollment here? And is that going to be a growing focus for the university in the year ahead? Your B2B enrollment, is it kind of coming up on 40% of total now? I mean it's been a while since we've had an update. Is there anything you could point us to on that? And then could you also give us a sense of impact to revenue and profit contribution as your enrollment mix continues to shift to this channel? Any color you can provide on that would be helpful. And then I do have a follow-up.

Okay, clear. Yes. So we continue to see healthy growth from the investments we've made in our account management that we've talked about in previous calls. We've gone to 36% of our enrollment now in this past quarter versus 33% in the previous year. And we expect that growth to continue based on the performance we've seen as we continue to invest in account management. And as we continue to lean into more strategic relationships, like I mentioned with the Wabash example earlier. And so I do think that, that will be a continued focus going forward into fiscal '27 and beyond.

In terms of -- this is a strong driver of revenue growth. There is a slight -- over time, we've been seeing a slight reduction in revenue per student. However, when you look at the profitability dynamics of our B2B channel, these students tend to retain and complete at higher rates. So the profitability has been very similar when we have done point-in-time measurements in the past. And we think as the channel gets more and more efficient as we're able to expand through account management that the profitability dynamics likely over time in the B2B channel are going to likely improve versus the lower revenue that we receive from those based on the discounts that we provide under the tuition assistance programs. So we think that the demand dynamics and trends are strong there and will continue into the future.

Okay. Perfect. And then a follow-up. I wanted to ask a little bit more on your AI initiatives. Can you talk about your tech platform investments? I know that was a big focus prior to the IPO. And just how does that help the university move more quickly on implementing these AI initiatives? And do you think that gives you -- is it a large differentiator, medium differentiator? Like how does that better position you compared to other education providers? And then related, does your OpenAI collaboration, does that give you an opportunity to align even more deeply with your B2B partners? Like is there some extra layers of potential synergy between bringing these companies together? And just how important is sort of your AI strategies to your sort of longer-term vision?

Yes. Thanks for that question. We're really excited about our vision of where AI can take us across the university. We're focused on 3 key areas where we think AI will continue to be transformational in us pursuing our vision. And the first area is just improving the learner experience based on the tremendous investments we've made in our data foundation and tech foundation and also secondarily is just driving operational efficiency in how we deliver education and how we continue to get students better outcomes while reducing the cost to deliver those outcomes.

And then the third area, and in my view, the most important is our ability to equip adult learners with the skills that they need in a workforce that is being heavily impacted by AI. We embraced AI in the classroom early, ethically and responsibly. We've woven AI into all of our curriculum. We've included skill development in every course that a student takes. And we're building more deep integration of discipline-specific AI assignments across all of our curriculum.

We think we can move much more nimbly, and we have moved much more nimbly than a lot of the competition because most of higher education has to go through a lot of governance systems just to adopt the governance philosophy. We're well ahead of that, and we're equipping our students with AI skills today that are relevant in the workforce today. And we think we have a lot of continued upside along those lines.

OpenAI, this collaboration, we view it as very strategic. It accelerates all of these efforts. OpenAI is obviously one of the primary pioneers being utilized by the workforce. And so part of this agreement is simply providing those tool sets to our students and our faculty so that we can more deeply integrate those tools into our curriculum. But more importantly, we're going to collaborate with OpenAI on curriculum, on skill development, on pathways to the workforce. We look forward to finding ways to conduct research to really make sure that we're equipping adult learners with the skills they need today and into the future.

And then on the back end, this -- we've been using OpenAI as a primary tool for quite some time now. And we have considerable opportunities to continue to scale our models to continuously improve student outcomes while driving operating leverage into the business. The example that I shared earlier, the One Team Assistant, is just one example. And it just shows the power of the tool. I mean, in fact, we rolled that out across advisers, but that's a generative solution that summarizes exactly where they are with a student. Something that historically took some time to get organized at the beginning of the call, and it offers up next best action so they can jump right into the most strategic part of the discussion.

This saves considerable time as well as gets the student to a better outcome. And this is really just the start of how we're scaling solutions with the human in the center. So that we can continue to leverage AI in ways that make our advisers stronger and better in working with students and reduce cost to deliver in that process. And as part of the OpenAI collaboration, we will be working with our solution engineers to accelerate those advancements also in the learning experience and operational efficiency areas as well.

And our final question comes from the line of Jack Slevin with Jefferies.

Maybe I'll wrap 2 questions into one here, so we can get everyone on their way to the top of the hour. Just on the guidance point, revenue accelerates a little bit. I think you've hit a lot on sort of what's been happening on the AI and the search front, but more just sort of from a numbers perspective, when we think about what's implied in that 4Q revenue guide, a little step-up in the pace, can you talk about what sort of the drivers are there that give you confidence that you can get that growth rate turned up a little bit versus the past 2 quarters? And then the second question, just on the buyback front, only $4 million of the $50 million authorization, how are you thinking about pacing? And how quickly could you push that if you decided to really pull the lever, so to speak, on that front?

Yes. On the revenue point, it's -- again, we're not -- it's hard to get too deep into it in terms of guidance beyond Q4. But in terms of your question, we've seen healthy retention that's continued. We're seeing strong demand. And as we work through this shift that we're seeing with AI search, we are seeing improvements as we navigate those changes. So those elements do play into how we're seeing Q4 versus Q3.

The other element -- and Jack, I know you're new, so welcome. But -- and you may be familiar with this, but we did have revenue that was generated again last year for a higher propensity of students that were coming into our risk-free program, which we offer to students with higher risk characteristics, sort of a try-before-you-buy. And the students that made it through that last year, we had a higher propensity drop from the institution in earlier courses. And so that's shown a little bit of a softened growth rate in Q3 and Q2 that -- versus Q4 where we didn't have that experience year-over-year. So that's just another thing to keep into consideration. In terms of your other question on the buyback, I'll hand that over to Blair.

Yes. Thanks, Chris. Jack, great to meet you virtually. I appreciate the question. I'll just touch briefly upon our capital allocation strategy. Our priorities really remain unchanged. And as discussed on this call, we are continuing to invest in student success, technology and other initiatives that support our long-term sustainable growth. We do maintain a strong financial position with approximately $269 million of cash, cash equivalents and marketable securities and no debt as well as the revolving credit facility that provides for additional flexibility.

We do remain committed to returning capital to shareholders through our quarterly dividend and share repurchase program. And as mentioned, we currently have $46 million in capacity. Any consideration of accelerating our buybacks, we would think about float as well as volume considerations. So we'd be very thoughtful as we approach that. And then obviously, as has been discussed, we want to continue to evaluate M&A opportunities that complement our long-term strategy, enhance our capabilities and create long-term shareholder value.

And that concludes our question-and-answer session. I will now turn the conference back over to Mr. Chris Lynne for closing remarks.

Okay. Thank you, everyone, for your questions and for joining us today. Our strategic priorities remain centered on student outcomes, employer engagement and preparing learners for a rapidly evolving world of work. Those priorities continue to guide how we invest, innovate and execute as we create long-term value for our learners, employers and shareholders. I want to thank our faculty and team members for their continued dedication to our students and their commitment to helping working adult learners achieve their educational and career goals. Thank you for your continued interest in Phoenix Education Partners.

And ladies and gentlemen, this concludes today's call. We thank you for your participation. You may now disconnect.

Good afternoon, and welcome to Phoenix Education Partners Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Beth Coronelli, Vice President of Investor Relations. Please go ahead.

Thank you. Welcome to the Phoenix Education Partners' Second Quarter Fiscal 2026 Earnings Conference Call. Speaking on today's call are Chris Lynne, our Chief Executive Officer; and Blair Westblom, our Chief Financial Officer. Before we begin, I would like to remind everyone that certain statements and projections of future results made in this presentation constitute forward-looking statements that are based on current market, competitive and regulatory expectations and are subject to risks and uncertainties that could cause actual results to vary materially.

Listeners should not place undue reliance on such statements. We undertake no obligation to update publicly any forward-looking statements after this presentation. The risks related to these forward-looking statements are described in our filings with the SEC, including our most recent Form 10-K, Form 10-Q and other public filings.

We will also discuss certain non-GAAP financial measures. You should consider our non-GAAP results as supplements to and not in lieu of our GAAP results. Reconciliations to the most directly comparable GAAP measures can be found in our earnings release and SEC filings. Unless otherwise noted, comments on the call will focus on comparisons to the prior year period. We also direct you to the supplemental earnings slides provided on the Phoenix Education Partners' website.

I'll now turn the call over to Chris.

Thank you, Beth, and good afternoon, everyone. We appreciate you joining us. Today, we'll walk through our results for the second quarter of fiscal 2026 and the continued progress we're making on our strategy. Guided by our mission, we remain focused on advancing student success through flexible, career-relevant education for working adults. Our students balance professional and personal responsibilities as they pursue their education and our strategy remains centered on supporting their success through personalized technology-enabled programs.

Fiscal 2026 also represents an important milestone for the University of Phoenix. Later this year, we will celebrate our 50th anniversary, marking 5 decades of serving working adult learners while continuously adapting to the evolving needs of the workforce. Our commitment to student satisfaction is reflected in the recent Encoura Ruffalo Noel Levitz priorities survey for online learners, a national study spanning 150 institutions and approximately 90,000 learners, which shows consistently high satisfaction among currently enrolled online students.

The university administered through the Noel Levitz platform, the survey to a random sample of 20,000 actively enrolled associate, undergraduate, graduate and doctoral students representing each college and degree level with approximately 2,500 students responding. The university performed above the national averages across all 26 measured attributes, with 85% of our students reporting being very satisfied or satisfied with their online university experience compared to 73% of students in the national benchmarked institutions. These results combined with strong retention results, underscore our commitment to delivering strong student outcomes and ensuring that working adult learners develop skills that translate directly into their careers.

Turning to our results. The second quarter reflects continued progress across our key priorities, enrollment growth driven by record retention, margin expansion and a strong balance sheet that gives us the flexibility to invest in students and return capital to shareholders, all underscoring the durability of our model and commitment to student success.

For the quarter, average total degreed enrollment was up 1.8%. Net revenue was down 0.4% and adjusted EBITDA was up 7.8% from the prior year. Average total degreed enrollment was driven by strong retention trends. Our retention rate from the most recent annual cohort was 76.6%, up approximately 500 basis points from the prior year and significantly improved from the 59.7% retention rate from the annual cohort ending in 2017 prior to our transformation. This sustained progress reflects the continued disciplined execution of initiatives across the student life cycle aimed at enhancing engagement, persistence and ultimately, student outcomes.

Net revenue was in line with expectations and adjusted EBITDA outperformed as a result of disciplined cost management and lower bad debt expense. Our employer-affiliated or B2B channel continues to be a meaningful growth driver. Employer-affiliated students represented 35% of total enrollment in the quarter, up from 31% in the comparable period in 2025, reflecting continued expansion of both existing and new employer relationships. This channel now represents over 1/3 of our total enrollment and helps reinforce the durability of our revenue as B2B students typically have higher retention.

We are seeing increasing demand from employers seeking to upskill and reskill their workforce, and our flexible career relevant programs are well positioned to meet that need. We align our curriculum to in-demand skills, with students building verified job-relevant capabilities throughout their coursework, an approach that differentiates us with both employers and individual learners. We also enable our students and alumni to showcase these capabilities through shareable employer-informed skill badges and have now issued over 1 million of these digital badges to date.

Complementing our B2B momentum, we are continuing to invest in technology and artificial intelligence to better serve students and employer needs. We are making meaningful progress deploying AI across the university. Examples include an AI-assisted student onboarding experience, delivering 24/7 support for students and faculty, increasing adviser productivity, expanding our software development capacity and driving greater efficiency and credit evaluation.

We are using AI-driven personalization to enhance engagement and student support as well as improve conversion in our marketing and enrollment funnel. We believe these initiatives are contributing to our performance and will continue to support margin improvement. We are also investing in how the university shows up across the next generation of search and discovery platforms. As social media and AI increasingly shape how prospective students explore and evaluate their education options, we continue to optimize our presence across these emerging interfaces and ensure our outcomes-focused content reaches students wherever they are and wherever they begin their journey.

We believe that our response over time has been effective as evidenced by our leading brand position across marketing platforms. While underlying demand for our brand remains strong, we experienced changes to search algorithms, which affected our marketing funnel. As we've done consistently for years, we proactively leveraged our leading brand, targeted content and digital expertise to adapt and optimize within the shifting marketing environment.

As we headed into the third quarter, we have continued to see healthy underlying demand and are encouraged by the early signs of improvement in the marketing funnel from our proactive initiatives and our ability to maintain our brand leadership position. We also believe the university is well positioned for the needs of today's workforce. We are in the early stages of what many are calling the great reskilling of the American workforce. Estimates suggest that 60% of the global workforce will need to acquire new skills by 2030 to remain competitive in an AI-transformed economy.

We believe the majority of jobs in the future will be held by workers fluent in AI. The workers most affected by this change are mid-career adults who need flexible career-relevant education that fits around their professional and personal lives, the exact population this university has served for 5 decades. We have been committed to the AI fluency of our students since we adopted the ethical use of AI by all of our students in our skills aligned curriculum approximately 2.5 years ago. And we will continuously adapt our curriculum and thoughtfully add AI skill development related to specific disciplines and careers that are rapidly evolving in their use of AI.

Our progress is demonstrated by the reporting from 79% of the students surveyed in the most recent Ruffalo Noel Levitz priority survey for online learners that they are satisfied with their confidence applying AI tools in real-world scenarios. As we enter the second half of the year, underlying demand and retention remains strong, we remain focused on disciplined execution and thoughtful investment to support student outcomes and financial performance. Our approach continues to be guided by our mission to enhance the adult learner experience, including strengthening engagement and retention.

With that, I'll turn it over to Blair.

Thank you, Chris. Net revenue for the second quarter was $222.5 million, down 0.4% compared with $223.4 million in the prior year period, reflecting the impact of discounts. Average total degreed enrollment increased 1.8% for the second quarter to approximately 82,600 students compared to 81,100 in the prior year, driven by strong retention trends. Net income attributable to Phoenix Education Partners was $10.8 million or $0.28 per diluted share compared to $16.1 million or $0.43 per diluted share in the prior year. The decrease was primarily driven by higher share-based compensation expense associated with our IPO.

Adjusted EBITDA for the second quarter increased 7.8% to $34.8 million compared to $32.3 million in the prior year. Adjusted diluted earnings per share was $0.58 in the second quarter compared to $0.56 in the prior year. Adjusted EBITDA margin for the second quarter expanded to 15.7%, up from 14.5%, driven by lower bad debt expense, primarily due to higher retention, partially offset by an increase in costs attributable to being a public company.

For the first 6 months of fiscal 2026, net revenue was $484.5 million, an increase of 1.3% compared to $478.1 million in the prior year. Average total degreed enrollment was up 2.9% for the first 6 months to approximately 84,100 students compared to 81,700, reflecting continued strength in retention. Net income attributable to Phoenix Education Partners was $26.2 million or $0.68 per diluted share compared to $62.5 million or $1.66 per diluted share in the prior year, with the year-over-year decrease primarily driven by share-based compensation expense associated with our IPO.

For the first 6 months, adjusted EBITDA increased 7.4% to $110 million compared to $102.4 million in the prior year, and adjusted diluted earnings per share was $1.97 compared to $1.92 in the prior year. Adjusted EBITDA margin for the first 6 months increased from 21.4% in the prior year to 22.7% in the current year, representing a 130 basis point improvement. These results reflect the increase in net revenue as well as lower bad debt expense, primarily due to higher retention and lower financial aid processing costs.

We continue to maintain a strong balance sheet with substantial liquidity and no outstanding debt. As of February 28, 2026, total cash and cash equivalents and marketable securities were approximately $252.1 million compared to $194.8 million at the end of the prior fiscal year. The increase was primarily driven by approximately $80 million of cash generated from operating activities, partially offset by approximately $10 million of capital expenditures and previously announced dividend payments.

Our capital allocation priorities remain unchanged: investing in student success and our technology platform, maintaining a strong balance sheet and returning capital to shareholders. Consistent with these priorities and our belief in the long-term value of our stock, today, we announced the authorization of a $50 million share repurchase program by the Board of Directors. This authorization provides flexibility within our capital allocation framework and the ability to manage dilution effectively over time.

During the quarter, we paid a dividend of $0.21 per share. And today, we announced another quarterly dividend of $0.21 per share payable in May. We expect to continue to pay quarterly dividends of approximately $0.21 per share or approximately $0.84 per share annually, subject to Board approval. We will also continue to actively evaluate M&A opportunities that would be complementary to our existing platform and align with our capital allocation strategy.

With respect to our fiscal 2026 outlook, we are reiterating our net revenue guidance of $1.025 billion to $1.035 billion and adjusted EBITDA guidance of $244 million to $249 million. As discussed, underlying demand and retention remains strong. We are maintaining our net revenue guidance, but currently expect to trend toward the lower end of the full year range, reflecting the near-term marketing dynamics discussed. Given our execution to date, we are confident in our adjusted EBITDA outlook and believe we are trending toward the upper end of our guided range. This reflects disciplined cost management and efficiencies driven by our strategic and operational initiatives, including AI and technology-enabled capabilities, which we expect to support margin expansion over time.

We operate from a position of financial strength, supported by strong cash generation and disciplined capital allocation. We are confident in the long-term durability of our business and remain focused on execution while continuing to invest in student success and long-term value creation.

I'll now ask the operator to begin the question-and-answer session.

[Operator Instructions]

Your first question comes from the line of Jasper Bibb with Truist.

I wanted to follow up on some of the marketing themes you discussed. Can you maybe give a little bit more detail on the trends you've seen over the past couple of months on starts or application growth as the company navigated the channel shift you discussed from Gen AI to search or search AI, I'm sorry.

Yes. Jasper, this is Chris. Good to hear from you. Yes. So we've been navigating changes to online search for quite some time now. And coming into the quarter, we did experience another algorithm shift in AI search on Google, which had an impact to how prospective students were navigating their search process.

We responded to it quickly and working with Google to understand, and this is something we're very good at. We've done for years to understand these algorithm shifts. And an example of some of our responses to that. We are learning that the AI overviews on Google now are more reliant as a primary source on YouTube.

And for many years now, we've been #1 in our sector in social media. We've developed a lot of outcomes-based content that is out there that's really generated strength for us. And so one of the things we did is we migrated a lot of that content over to YouTube. And so we made changes like that, that have -- we talked about in our opening remarks that we've seen improvements in some of these recent trends coming into Q3 back in line with the trends that we were expecting for this year.

To answer questions directly about applications, really, this happened going into our January enrollment period. So there was some impact on the January enrollment. And the way I would characterize it is we're seeing healthy demand at the top of the funnel. We're seeing changes in how that demand is coming to the university through multiple channels. And we've been reacting to those changes to make sure that we meet the demand where it comes to us effectively. And we feel like we've responded well in line with how we've been managing these types of changes over time for the last several years and are happy with the trends that we're seeing going into Q3.

That all makes sense. And I'm not sure how much you can address this, but I think the education department changed the rules around private equity ownership in this space. The company's majority shareholder is obviously a private equity firm. Does that change anything on how they think about their investment or time line there that they've conveyed to you?

The short answer is no. And I think the changes you're referring to are related to the program participation agreements. And we just entered into a 6-year agreement last year. And based on any of the guidance received, we don't anticipate any impact.

Your next question comes from the line of Alex Paris with Barrington Research.

Congrats on the outperformance in the quarter. Just to clarify your answer on the previous question. Chris, you said coming into the second quarter, these changes were made at online search, and it had an impact on Q2 enrollment?

Yes. It was ahead of the January enrollment season later in January, we saw some impact, which ended up being, we believe, a result of an algorithm shift in Google's AI overviews. When we were seeing that, that was in the late or early winter, so November, December time frame. Early on, it looked like some seasonality that we were trying to understand, we later recognized that the algorithms did shift and so the way we responded to that was multifold. We had a lot of responses, really just continuing to do a lot of the same things that we've been doing for years. I think one of the more material changes we made was learning that Google had shifted to YouTube as being a primary source for the AI overviews.

And despite the fact that we were very strong in content across social media, we weren't where we can be with YouTube. So we made some large shifts in the January and February time frame to address that. And when I mentioned that we're seeing trends return back to trends we expected for the year, that began to occur back in early March.

Okay. Got you. I just wanted to clarify that. So you saw the initial impact early in the second quarter, you made some changes and then early here in the third quarter, month of March, you're seeing some improvement?

Yes. I would say the impact was noticeable really in the later part of the second quarter, but the algorithm shift happened in the early part of the second quarter.

Okay. Got you. So the shift early in the quarter, the impact late in the second quarter and then here early in the third quarter, you're seeing some improvement in response to some of the changes that you've made, you think?

Yes. I mean we've seen continuing through all of this, we've seen strong demand for our brand, which is the very top of the funnel. One of the most effective ways of looking at that is just the inquiry searches for our brand on Google. And then the next measurement we look at is how that demand comes to us on our website, and it comes from various channels. And we've seen strength in how that inbound demand is coming to us. That's returned back to what I would call normal relative to our recent history here in the early part of Q3.

Got you. And then so the second question is for Blair in your comment regarding revenues and the guidance for the balance of the year, you said that revenue should trend to the lower end of the full year range because of some of these marketing issues?

Yes, that's right, Alex. As discussed, we would expect revenue to come in, in the lower part of the range just given the marketing dynamics that we've observed. Chris, is there anything you'd like to add to that?

Yes. I mean the way we looked at it is we took the best information available. We didn't feel based on that, that we should change the range, but we did want to guide to the lower end given these dynamics we saw in Q2.

And again, it sounds like conservatism, given you said that things have kind of returned to normal here in, I don't know, month of March or early April?

I would call it, Alex, prudent. I mean we -- I think you'll learn the style of this management team over time. We try to be prudent. I would also say that there's always a cycle time. So when you see demand, it works its way through the funnel. And so I think it's prudent because we're seeing what we need to see, but we also know that there's seasonality in terms of when students actually begin their classes. And so we took that all into consideration with our guidance.

Okay. That's great. And then just to button it up. Adjusted EBITDA, on the other hand, is trending towards the upper end of the full year range, and that's due to cost management as well as lower bad debt related to the better retention. Do I have that right?

Yes, absolutely. And it's also a reflection of the good work that our teams are doing, leveraging our technology and AI solutions. That's been a big part of our story for years. And we're seeing nice traction in getting efficiency. You heard it in our opening remarks that our story has been -- we've been effective at gaining improvement in student outcomes while reducing the cost to deliver those outcomes. And we continue to see the ability to do that, not only improve retention, but improve the efficiencies in generating these results. And we believe that we're going to maintain those types of efficiencies through the remainder of the year.

Your next question comes from the line of George Tong with Goldman Sachs.

Can you provide an update on your fraud prevention initiatives and your estimate of how much of an impact that is currently having on enrollment performance?

George, yes, thanks for the question. Very similar to last quarter. We feel really good about the infrastructure that we put in place last year. If you recall, we did see a lot of friction as we were putting the infrastructure in place. And then in Q4 of last year, we made a choice to include some of the analytical detection and verification processes at the top of the funnel. And we saw a lot of friction in Q4.

That improved significantly coming into Q1. It's improved even further into Q2. What I would say today is we have a very strong, agile system of detection based on strong analytics and prevention with verification, fraud detection with our bank accounts that's working very well. We think that this is doing a couple of things. While there is a lot of UEA activity in the marketplace, we are seeing evidence that as it relates to us, while we still see a lot of volume try to get into our funnel, it's dissipated quite a bit.

So we do think that our systems of controls have deterred the volume from trying to penetrate our university as often. And we've gotten better and better at that balance of reducing friction significantly for well-intended students so that they can have a normal process of working their way through the enrollment process. So we feel really good about where we're at. We have it under control through Q2. It's a day-to-day thing, but our systems are great. And I would say there is a little bit of friction that will exist as long as this activity exists in the marketplace, but it's not something that we consider material to date.

Got it. That's helpful. And then your retention rate expanded quite a bit, 500 bps year-over-year in the quarter. Can you elaborate on the initiatives that drove this level of improvement and if this rate of improvement is sustainable or more onetime in nature?

Yes. Thanks for that question. I'll say there's a -- we're in the probably eighth year, if I'm doing my math, our ninth year of a transformation that we've been talking a lot about. We've seen many, many years of consistent meaningful improvement in our retention rates, which ultimately will lead to stronger and stronger graduation rates. And it's a myriad of things. I mean we've built a technology digital-first platform inside and outside the classroom that leverages our data in really powerful ways to predictively meet our students when and where they need us with solutions. And we have hundreds of solutions that we're constantly focused on that are removing friction or finding ways to get more effective outcomes to our students.

Some of the bigger needle movers we talked about were mobile-ready courses in those early courses where students are acclimating into the institution. That's had a meaningful uptick because as they have success in those early courses, they get more confident and then they end up persisting. If they can get first -- through the first 2 or 3 courses, they persist at much higher rates and graduate much higher rates. Dispersed by course we've talked about in the past has also been a really meaningful needle mover.

But there's numerous other things, and that's part of our story. Like we're really excited about this moment where -- at which AI technologies are we're in a position to leverage these technologies in ways to continue to do what we've been doing, which is improve these retention outcomes for our students and satisfaction outcomes while reducing the cost to deliver them. And we're seeing an acceleration of AI initiatives across the Board from our AI-assisted student onboarding to human-in-the-loop solutions that are taking cycle times and supporting our students down considerably while getting to more effective solutions in a much more efficient way.

Examples are our transcript evaluations. We've seen those cycle times improve. We still have our transcript evaluators in the process, but we're leveraging AI and other technologies to make that process much more effective or call summarizations that we're leveraging across our student-facing positions that enable us to take many, many minutes, sometimes more than 10 minutes out of the preparation process of supporting a student and put us in a position to give them even better support, leveraging AI to better summarize where we are with that student and what next steps we should be taking.

So we expect it to continue. Now in terms of the onetime, 500 basis points improvement for undergrad programs in fiscal '25 was an enormous improvement. We're very proud of it. I would not expect that year-to-year. That is really -- you don't see that often. You get a 100 basis point improvement in any given year, and that's a pretty meaningful jump. But we have continued to improve versus last year. So we do expect to continue to improve retention going forward. That's a really important part of our strategy.

Your next question comes from the line of Griffin Boss with B. Riley Securities.

I just want to jump right back into that discussion on retention, more so directed at the expansion of your employer-affiliated students or the B2B segment, if you will. So we've talked about this plenty in the past. I'm just curious, I mean, you've expanded that from what was it 31% a year ago, now it's a 35% of total enrollment. Where -- can you just remind us where you think that, that level can go or maybe what you aspire to do? Obviously, this is a big strategy for Phoenix in terms of retention. But you've talked about in quarters past how this -- you could see kind of overall revenue growth trailing enrollment growth given some of the Myriad things that you've discussed today on top of B2B. But is that going to continue into -- past the third quarter at this point? Just kind of where you're at on the B2B initiatives at this point?

Yes. Thanks, Griffin. I really want to address 2 parts of your question. One, where we're going with our B2B growth; and two, the relationship between revenue and enrollment because I want to be really, really clear on how I think you should be considering that. In terms of B2B growth, I mean, this is a big part obviously, we've discussed for a while of our long-term strategy. We think we're well positioned to meet the reskilling needs of employers and their employees who are working adult students. And we're positioned well to continue healthy growth in that segment.

We increased the size of our account management teams this year by about 25%. We're seeing the benefit of that, both in expanding growth within existing relationships as well as growing new employer relationships as well. And we believe we can continue healthy growth in that area. We're not in a position to give you a long-term view on that, but we have a -- well over a majority of our students are working adults. We have over 2,500 employer alliances that cover a large percentage of the market share of employed work in adults. So we do think that there is strong upside in growing that channel.

In terms of the revenue and enrollment relationship, we do have a discounted rate on average for B2B. And I think we mentioned that in our opening remarks. That's been very much in line with our expectations. And just as a reminder, our B2B students retain at higher rates. It's a very durable revenue stream. And over time, they have very similar profitability characteristics as our B2C students. And the bigger the channel gets, the more effective it is at reducing the acquisition cost of growing that channel.

So we feel really good about that being in line with expectations. But the other relationship between revenue and enrollment to keep in mind that I talked about in previous quarters is last year, we had a higher volume of students enter our risk-free period. This is not anything to do with B2B, but we had a larger percentage, and we offer a risk-free period to students that have certain risk characteristics that don't correspond to higher retention rates. So we offer them the opportunity to try our courses out before they enroll. That did result in more of those students deciding to enroll, but not persisting beyond their initial courses.

So I mentioned this early in the year for a reason because we anticipated in this quarter and in Q3 that would affect we have atypical relationship between our average enrollment and revenue as a result of that experience last year. We're not having that experience this year. We have students that -- in terms of student mix that we expect to persist much longer, but it is affecting that trajectory in Q2 and Q3, and we expect that to reverse back to more normal trends in Q4.

Your next question comes from the line of Jeff Silber with BMO Capital Markets.

This is Ryan on for Jeff. I had a question. I know business and IT are big program concentrations for you. I was wondering if you're seeing any shifting degree preferences from students as some of the newer students might be fearful about the potential Gen AI impact. I know we saw some of that in the fall clearinghouse data. So curious as it relates to your business.

Yes. Thanks, Ryan. Yes, we're looking at that very closely. I think what I'd like to point out that we feel really good about is we made multiyear investments in aligning all of our curriculum to career relevant skills. And that's across all of our programs. We're very comfortable with the breadth of our program offerings, including our business and IT programs. And what that means is that in every course a student takes, they can earn verified skills that map to the career relevant skills that employers need today.

We've embedded AI fluency into the skills aligned curriculum over the last 2.5 years. And so we feel very good about the differentiation of our programs from a skills alignment and the relevancy to the workforce needs today. And we're seeing that -- we believe that's evident in the growth that we're seeing directly in the B2B relationships because these -- we're growing existing relationships where we still compete against other universities and colleges, and we're able to expand our growth, and we believe that differentiation is a very helpful driver to that growth.

And we're seeing growth in all of our programs. One of the strong trends I also read about is in health care and nursing. That has been a nice tailwind for our health care programs and nursing programs. Health care employers are the largest segment we have across our B2B portfolio, just under 30%. But we're seeing growth of all of our programs within that segment. And many of our programs are business and IT because there is demand from those employers and those employees. So we feel comfortable with where we're at as it relates to the University of Phoenix's programs.

And I appreciate the color on the B2B enrollments and the strength of those relationships. I'm just wondering how you're thinking about the non-B2B degreed enrollments? And are you investing there? And how has that kind of been trending?

Yes. So we have variability between B2C and B2B throughout the year. We're comfortable with the demand we're seeing across both programs, both channels. We think that if we're meeting the needs for employers and workers, we're meeting the needs for those that don't have benefits under employers and are working mid-career working adults. So we feel like that differentiation is helpful across B2C and B2B, and we feel like we see plenty of evidence of that in our demand framework.

Your next question comes from the line of Stephanie Moore with Jefferies.

I wanted to appreciate all the feedback this afternoon. Maybe you could talk a little bit about the competitive landscape right now. You talked a lot about the investments that you've made, specifically kind of targeting from a marketing standpoint. But maybe just give us an update on just how you would characterize the pulse of the overall competitive landscape. And then as you think about your strategy over the course of the next 1 to 2 years, what we could expect to see as you continue to look to differentiate yourself?

Yes. Thanks for the question. We have a very large addressable market, both students with some or no college, some college degree or some college credits that want to complete their degree and those that have no college credits and want to complete their degree. And for a lot of those students, we may not be competing with anyone except for motivating them to pursue getting skills that could advance their careers.

So we tend to focus on what are the needs of those potential students that we can support. Students have a need for skills today. They want career-relevant skills that not just wait for a degree, but that they're getting skills along the way that have value in the workforce. We believe that we're delivering on that in a very differentiated way. Each course, they're getting skills in weeks, not years. That's one of our primary campaigns. And we don't have many competitors that can say the same thing based on the substance of what they deliver.

And so we think that, that positions us very well to meet the needs. There's also other things that we do very well at saving time and money. We're very effective at helping students with previous college credits, leverage those college credits to save time and money. So we make sure that we differentiate the experience that those students have and getting credit on the front end. The more effective we are there, the better we compete with other institutions like ourselves. There's a lot of flexibility, our empathetic support process is something that busy working adults who are a little bit cautious about pursuing college again. They see that as a very strong value proposition.

So the more effective we are at telling people what we do really well and helping them understand how we do it better than our competitors tends to help us be effective in the marketplace. And we just continue to lean into those distinctions effectively in our marketing efforts.

Got it. And just as a follow-up, I mean, I think we're all a society thinking about the way we use education is differently now with AI. So I guess maybe just to wrap it up, I mean, do you feel like there's a strategy in which you can kind of advertise your approach not only to everything you just outlined, but that in Gen AI world, maybe how you pursue education could be different? I guess I'm just a high-level question if that is. Yes.

I'm thrilled you asked it. Look, we think the evolution of AI is extremely powerful to our business model and how we serve our students. We talk a lot about that. But to answer your question, when you look at the workforce trends, what's existing today and where the world is going, and we talked about this in my opening remarks about this great reskilling as they call it, we're living that. I mean this is a rare moment where we're looking at our own institution and working on reskilling our entire employee base to help them leverage tools that magnify their ability to pursue the goals that we have.

There's a lot of organizations like us that have a big vision. And the use of AI is powerful at a person level, at a workflow level and at a corporate level in helping institutions get to the visions that they have. So the entire workforce is going to need these skills in order to drive the goals of tomorrow. And we know that the workers that are fluent and are capable in using AI are going to have the jobs of tomorrow.

We're extremely well positioned. We think this is a tailwind for the university. We adopted AI into our curriculum almost 2.5 years ago. We were a first mover here. Now all institutions are trying to figure out how to do this. Our students are gaining fluency in AI. We're getting deeper and deeper into looking at what our employer partners and industry councils are looking for in the workplace and building those technical skill needs into our program.

So we think we're well positioned to help our students gain skills for tomorrow. We also think our differentiation is we understand the adult learners. So when you look at the learner today, more and more learners are becoming what we have served for almost 5 decades, an adult learner that is constantly looking to upskill that values the pursuit of a degree, but they're working, they have responsibilities along the way.

AI has changed the game so much. The speed and movement of skills in the workforce is going to cause more and more learners to look like our learners, and we're well positioned to deliver value. And we know they want value along the way as well as through the degree, and we have a curriculum that offers them skills along the way as well as the degree. So we think we're very well positioned within the trends that we're seeing in the workforce today as it relates to the AI.

That concludes our question-and-answer session. I will now turn the call back over to Chris Lynne for closing remarks.

Thank you. Our results this quarter reflect continued progress in executing our strategy. We remain confident in the strength of our mission, the resilience of our model and our ability to continue to deliver strong student outcomes. I want to thank our faculty and team members for their continued dedication to our mission and commitment to student success. Thank you for joining us today.

Good afternoon and welcome to Phoenix Education Partners First Quarter Fiscal 2026 Earnings Conference Call. Today's call is being recorded. [Operator Instructions]

I would now like to turn the call over to Beth Coronelli, Vice President of Investor Relations. Please go ahead.

Welcome to the Phoenix Education Partners First Quarter Fiscal 2026 Earnings Conference Call. Speaking on today's call are Chris Lynne, our Chief Executive Officer; and Blair Westblom, our Chief Financial Officer.

Before we begin, I would like to remind everyone that certain statements and projections of future results made in this presentation constitute forward-looking statements that are based on current market, competitive and regulatory expectations and are subject to risks and uncertainties that could cause actual results to vary materially. Listeners should not place undue reliance on such statements. We undertake no obligation to update publicly any forward-looking statement after this presentation, whether a result of new information, future events, changes in assumptions or otherwise. The risks related to these forward-looking statements are described in our filings with the SEC, including our most recent Form 10-K, Form 10-Q and other public filings.

We will also discuss certain non-GAAP financial measures. You should consider our non-GAAP results as supplements to and not in lieu of our GAAP results. Reconciliations to the most directly comparable GAAP measures can be found in our earnings release and SEC filings. Unless otherwise noted, comments in the call will focus on the comparison to the prior-year period. We also direct you to the supplemental earnings slides provided on the Phoenix Education Partners' website.

With that, I'll turn the call over to Chris.

Thank you, Beth, and good afternoon, everyone. We appreciate you joining us as we report our results for the first quarter of fiscal 2026. This quarter's results demonstrated disciplined execution of our strategy, marked by steady growth, strong retention and continued investment in student success and long-term value creation.

At the University of Phoenix, our mission remains clear: to expand access to higher education that delivers relevant career-aligned skills for working adults. The students we serve reflect that mission. As our students balance work, family and education, we remain focused on meeting their needs through flexible programs, strong academic outcomes and a personalized student experience.

Turning to the first quarter. We delivered a solid start to the year with financial performance consistent with our expectations and results that reinforce the full year outlook we provided on our November earnings call. First quarter revenue grew 2.9% year-over-year, with a 4.1% increase in average total degreed enrollment to 85,600 students. Employer-affiliated enrollment continues to be an important contributor to overall enrollment growth and now accounts for approximately 34% of total enrollment, which is up from approximately 31% in first quarter 2025.

Adjusted EBITDA increased 7.2%, reflecting continued revenue growth, enhanced productivity and operational efficiency while sustaining strong student outcomes. Our focus on student outcomes as well as execution and efficiency carries directly into how we approach AI and technology across the university. As we've discussed previously, we view AI as an important enabler of our existing strategies, and we apply it in a disciplined, deliberate manner, empowering our team to explore and evolve how we work in service of our students.

Our approach centers on two priorities: first, we are preparing students to be AI fluent. As the workforce landscape continues to change rapidly, we are embedding AI into programs, course content and the learning experience, so students build practical career-relevant skills. We are equipping learners to use AI ethically and appropriately, understanding when AI adds value and when human judgment is essential.

Second, we are leveraging AI as an institution to drive operational excellence. We are starting to use AI to remove friction, increase personalization, automate complexity and unlock capacity, enabling us to focus on what truly matters. We are encouraged with our progress, leveraging AI to improve outcomes across the student journey with examples that include the use of AI assistant appointment setting and outreach in certain situations to improve enrollment conversion and retention as well as several pilots we have in production, leveraging large language models with our proprietary data to enhance our AI chat assistance in servicing our students 24/7 both inside and outside the classroom.

Let's move on to regulatory updates. Last week, the Negotiated Rulemaking Committee reached consensus on accountability measures related to changes enacted under the One Big Beautiful Bill Act. The proceedings were consistent with our expectations. No new material areas of risk were introduced during the process, and we are pleased we will now have an accountability framework that applies equally to all programs at all institutions.

As part of negotiated rulemaking, the Department of Ed released preliminary program performance accountability metrics. Now while this information is preliminary, we were encouraged that based on these informational program performance metrics, all University of Phoenix programs for which metrics were provided are passing.

I'd also like to briefly address the cybersecurity incident involving our Oracle E-Business Suite software platform, which was disclosed in our early-December 8-K. The university was one of numerous organizations, including other academic institutions, from which an unauthorized third-party exploited a zero-day software vulnerability in Oracle EBS to obtain certain personal information without authorization. The software vulnerability has since been remediated.

The incident did not impact our student and academic programming and was addressed promptly. We recorded $4.5 million of expense associated with this incident, principally representing costs to notify the affected parties, fees from third-party cybersecurity firms, legal fees and other expenses related to the incident response. While we expect to incur additional related expenses in future periods, we maintain a comprehensive cybersecurity insurance policy subject to customary deductibles, exclusions and limits.

Reflecting confidence in the durability of our cash generation, we announced the declaration of our inaugural regular quarterly cash dividend of approximately $0.21 per share of common stock, which was approved by our Board of Directors and is consistent with the dividend amount we outlined during the IPO process. This decision underscores our disciplined approach to capital allocation and long-term value creation while continuing to invest in our students, programs and growth initiatives.

As we move into the second quarter of fiscal 2026, our focus remains on disciplined execution and investing resources intentionally as we balance growth, student success and financial performance. We started the year on solid footing and are well positioned to continue executing against our strategic priorities and are guided by our mission to enhance the learner experience and strengthen engagement and retention to support adult learners and achieving meaningful educational and long-term career outcomes.

I'll now turn the call over to Blair to walk through our financial results in more detail.

Thank you, Chris, and good afternoon. For the first quarter of fiscal 2026, our results were in line with our expectations. Net revenue increased 2.9% to $262 million, driven by a 4.1% increase in average total degreed enrollment to 85,600 students, supported by new student growth and retention gains from fiscal year 2025 continuing into first quarter 2026.

Net income attributable to the company was $15.5 million or $0.40 diluted earnings per share compared to $46.4 million a year ago or $1.23 diluted earnings per share. The decrease in net income attributable to the company and diluted earnings per share was primarily due to noncash share-based compensation and other expenses that resulted from the initial public offering. Adjusted net income attributable to the company increased 5.3% to $53.6 million, up from $50.9 million in the prior-year period.

Adjusted EBITDA for the quarter rose 7.2% to $75.2 million, and adjusted diluted earnings per share increased $0.03 to $1.38. As a reminder, our earnings per share for all periods has been retrospectively recast to reflect our IPO and related transactions. Please refer to our annual report on Form 10-K and quarterly report on Form 10-Q for additional information regarding our dilutive securities.

Adjusted EBITDA in the first quarter excludes $29.5 million of noncash share-based compensation expense, $4.5 million of expense related to the cybersecurity incident and other items as detailed in our earnings release and quarterly report on Form 10-Q. The share-based compensation expense in the first quarter is not indicative of our expected long-term annual run rate for share-based compensation and was principally the result of expense from modifying pre-IPO stock options.

Adjusted EBITDA margin was 28.7%, up from 27.5% in the prior period, reflecting the increase in net revenue, improved student-facing team productivity as well as lower financial aid processing costs and bad debt expense, in part due to our transition to dispersing financial aid by course.

Regarding expenses, instructional and support increased $7.1 million to $115.2 million, and general and administrative was up $24.6 million to $106.6 million. Both increases principally attributable to the share-based compensation expense increase discussed in my earlier comments.

From a cash and liquidity perspective, we continue to maintain a strong balance sheet with no outstanding debt. We ended the quarter with substantial cash and marketable securities and no borrowings under our revolving credit facility, providing flexibility to invest in the business while maintaining a disciplined capital allocation strategy.

As of November 30, 2025, total cash and cash equivalents, restricted cash and cash equivalents and marketable securities were $218.1 million compared to $194.8 million as of August 31, 2025. The increase was primarily attributable to $31.1 million of cash generated by operating activities, which was partially offset by $4.7 million of capital expenditures.

As Chris mentioned, we announced a regular quarterly common stock dividend today, payable on February 18, 2026, to shareholders of record as of January 28, 2026. We expect to pay quarterly dividends of approximately $0.21 per share or approximately $0.84 per share annually, in each case, subject to Board approval.

Our capital allocation priorities remain unchanged, guided by a commitment to financial discipline and flexibility. We allocate capital to reinvest in the business, supporting strong student outcomes, driving sustainable enrollment growth, advancing our technology platform and enhancing operational efficiency while maintaining strong liquidity and returning capital to shareholders.

With respect to our fiscal 2026 outlook, we are reiterating the net revenue guidance of $1.025 billion to $1.035 billion and adjusted EBITDA guidance of $244 million to $249 million, both of which we provided on our November earnings call.

Our first quarter performance represents a strong start to the year and reinforces our confidence in our full year outlook. We continue to operate from a position of financial strength with strong cash generation to support our strategic priorities. We remain focused on disciplined execution while investing in the success of our students and long-term value creation.

I'll now turn the call back to the operator to open the line for questions.

[Operator Instructions] Your first question comes from Greg Parrish with Morgan Stanley.

Congrats on the results. Nice to see solid enrollment growth despite the identity verification changes last year. There's a lot going on at the Department of Education last week as well. Sounds like a positive for you, the gainful employment changes, but maybe you could talk a little bit more about that.

Maybe if you could just zoom out, there continues to be a real impetus on cracking down on fraud, and it seems like a lot of the risk here is behind you, right? You're past verification. This earnings threshold is now out there, but just kind of level set where we are, what you're watching and then any potential impacts here for this year.

Yes. Thanks, Greg. This is Chris. Yes, so neg-regs have been -- there's a lot that's been covered. The most relevant session was last week for us. They discussed, as I'm sure you know, the program performance metrics for higher education. And the punchline on what we saw is, I mean, they did reach consensus, which we thought was a positive thing. They're moving in a direction of this earnings metric, both for gainful employment and the One Big Beautiful Bill Act earnings threshold across all programs, treating all universities and colleges the same. And so that's consistent with our early expectations, and they've moved further in that direction, which we see as a positive.

We don't anticipate, and we've said this in the past, any material adverse impact from this regulation. What we learned last week was supportive of that. In fact, they actually -- the department released preliminary information on program performance metrics for earnings for institutions. And for the programs that they released for us where they had earnings data, all of our programs passed. So obviously, that is encouraging. So we feel pretty good about things there. And I would say that everything is preliminary until it's final, but it's moving in the direction that we had anticipated, which we see as a positive thing.

In terms of the focus, I think you were alluding to the federal government's focused on fraud. There's nothing really new to report there from my perspective as it relates to negotiated rulemaking. The department is, as we've discussed a little bit on the last earnings call, aware of the unusual enrollment activity in the market environment and nothing has changed there in that they're focused on increasing their controls around the FAFSA process to prevent those types of issues. And there's nothing new to report. We didn't have any new or material activity with the department over the last quarter.

As it relates to our efforts with unusual enrollment activity, we continue to see the outcome of our control structure that we put in place with detection and verification in fiscal '25. We saw the productivity enhancements that we talked about in Q4 as a result, continue into Q1, and we feel like we have that under control at the moment.

Your next question comes from Alex Paris with Barrington Research.

Congrats on a better-than-expected quarter. I'll just switch up the order here a little bit to follow up on that last question. You said, Chris, regarding the preliminary data that was provided by the Department of Education, where earnings data was available. How comprehensive was that in terms of the programs addressed? Were there a lot of programs given? Did it cover the majority of your programs? Or are there some that we're still waiting -- important programs that we're still waiting for data?

I don't have the exact data because the team is working through it. What I can say is it was a majority greater than 50% of our programs that we did have earnings information for. And it covered a pretty material amount of our programs in terms of size and importance of the programs.

One reason why I think earnings may not be available for programs is they just didn't have large enough cohorts. So there would be probably a larger proportion of those that they didn't have earnings information for that would correlate with smaller programs. But I don't have the exact data. I have it at a high level, and our team is working through it. But I think it's net positive from the perspective that it was greater than 50% of our programs that were reported on.

Great. That's good news. Intuitively, are there any programs among the University of Phoenix offering that you would think that is going to have any challenge? And what percentage of enrollment does that account for? Like in the old days, under gainful employment, concerning programs would have been culinary or criminal justice and things like that. Any programs that you think might have a challenge when that data is available just from what you know from previous?

Yes. Thanks, Alex. We talked a little bit about this in the process of going public. I can't recall if we talked about it on the last earnings call. But -- and I hesitate to speculate too much about this based on where we're at because I don't want to leave an impression one way or the other. But what we had done earlier in the process as we looked at all of our programs, and this is something that historically we've been good at in terms of taking all available data, some of this data was similar to the data that you would track for gainful employment regulations that we've been looking at since the Obama administration.

And within that assessment, what we would have on our radar are programs that are in disciplines that structurally have lower earnings. So the one area that we talked about was some of the behavioral sciences where just by the nature of those programs, the graduates don't make a lot of money comparatively. And so we thought that, that may be an area of risk. And when the -- this was going through Congress, that was an area that there was a lot of discussion and while the bill was in sort of preliminary form.

With that said, if we were to look at the preliminary info, it was positive, reflecting on what we speculated, but again, it's preliminary info. So we didn't anticipate and continue not to anticipate this having any kind of material adverse impact on our programs.

Good. That's helpful. And then last one on that regulatory front. It seems that the controls, the algorithms that you put in place that you've moved to the top of the funnel in the fourth quarter is doing what you wanted it to do. I was just curious, has there been any let up in the number of fraudulent attempts? Or are the criminals still running around the industry?

Yes. I mean the activity is definitely still in the marketplace. I would say that as we put the controls further up in the funnel, we've seen those volumes deter and trend downward since Q4 -- pretty significantly since Q4 when we put the detection and verification processes at the application process. But the volume that we're deterring that we can see is still, I would consider, pretty significant. So I would say that the activity is definitely in the marketplace, and we're just doing an effective job of stopping it from getting into our enrollment funnel.

That's great. And then my last question is regarding new student enrollment. I know you don't report it specifically, new student enrollment. But based on the IPO roadshow and our conversations since, it did have an impact on enrollment in maybe the fourth quarter of 2024 and early into 2025. Yet, if I understand it correctly, your new student enrollment has been up year-over-year for the last couple of quarters. When do the comps get easier in terms of new student enrollment? Is it in the third quarter of this year or the fourth quarter of this year?

Yes. For new students, we had pretty significant productivity impact in the enrollment funnel that was seen through Q3 of last year, and it did improve quite a bit in Q4, as you just mentioned, of fiscal '25. And that was associated with moving these detection and verification controls to the top of the funnel. And what that meant is we were doing a better job of preventing that noise in the funnel, which means our enrollment representatives were seeing a lot more productivity and moving closer to historical levels that we have predictably and sustainably met over many years.

So we continue to see that productivity carry into Q1, and to your point, that is helping with continuing new student growth. And we expect that trend to continue in Q2 and Q3. And then in Q4, the comp, as it relates specifically to those productivity enhancements, will be a little bit tougher because that's when we saw the trend reverse historically.

Your next question comes from Jasper Bibb with Truist Securities.

I think on the last call, you messaged '26 was going to be a little bit of a second half weighted year from an enrollment growth perspective. Has that changed? I mean it seems like a fairly strong start to the year here in the first quarter.

Yes, Jasper, I'll take that question. The primary conversation from my perspective in the last quarter talking about trajectory this year was really around the relationship between our enrollment growth and our revenue growth. And so we are anticipating that our revenue growth is going to be, I don't know, from a lack of a better word, unnaturally lower than our enrollment growth through Q3, driven by the fact that last year, we had a higher volume of students that we were attracting into a risk-free period that ended up not persisting beyond the initial courses.

So that created shorter-term revenue last year that we're not anticipating based on who we're attracting into that risk-free cohort this year. So said differently from a pure financial perspective, the quality of the incoming revenue is higher, but you're going to see a little bit of a lag related to the average total degreed enrollment growth. And that's going to be more prominent in Q2 and Q3. So that's what we intended to communicate last quarter, and it will be consistent with what we still believe and we'll expect that to normalize much more in Q4.

In terms of average total degreed enrollment growth, we had a solid first quarter. We think we set a solid foundation for the year. We're not -- we're reiterating our outlook for the year. We're still early in the year, so we continue to stand behind the outlook that we provided last quarter and this quarter.

Maybe just following up on the headwind from higher, I guess, students going through the risk-free period last year. Should we expect that to show up in revenue per student or enrollment? I just hoping you could provide a bit more detail there from a modeling perspective. I guess my question is, yes, was that recognized in enrollment or in the prior year? And should it just flow out of revenue per student this year?

Yes. So revenue per student for us is not a key metric. But if you were to calculate the revenue per average total degreed enrollment, we would expect that to come down in Q2 and Q3 as a result of this because we had enrollment associated with those students that didn't persist amongst the -- past the first few courses last year, but we had sort of a shorter-term impact on revenue. And so we're not seeing that revenue carry into this year.

So based on that calculation of revenue per student, you should anticipate this would be something that would drive down revenue per student. Blair, I think you wanted to add something?

Yes, absolutely. Thanks, Chris. Great question. Thanks, Jasper. I just wanted to comment that you will see variability in the growth of revenue versus average total degreed enrollment by quarter, and that's driven by a number of different factors, including the timing of course starts, composition of enrollment in addition to the factors that Chris mentioned.

And in Q1, fiscal '26, as I'm sure you noted, revenue growth of 2.9%, driven by growth in average total degreed enrollment of 4.1%. The difference was primarily the expansion of B2B. As Chris noted in his remarks, it was up 3 points year-over-year. And B2B students typically receive a higher discount rate than that of non-B2B students. So those are other factors that could impact it by quarter.

Your next question comes from Griffin Boss with B. Riley Securities.

Just starting off on the enrollment growth aspect there. Is there any color you could provide about where primarily you're seeing that new student growth? Is it broad-based? Or are there specific disciplines that you're seeing stronger demand for?

Yes, Griffin, thanks for the question. As we've described, our program offerings, we have done a lot of work and continue to focus on ensuring that they're aligned to fields that are in demand and growing. Over 90% are aligned to the market in that way. And as a result, we're seeing broad-based growth across our programs. And I think that's reflected also in what we're seeing with the B2B growth because that's aligning to what we're seeing employers where they're hiring and where they currently have employees. So I think the simple answer is that it's broad-based.

Got it. Okay. And then I just have a couple of quick ones on the OpEx side. First, just curious if there will be some level of higher operating expenses going forward, given that cybersecurity event you saw last fall and the $4.5 million paid in the quarter, is there going to be any marginal increase in cybersecurity or maybe legal fees that you're going to be paying that wouldn't have happened had that cybersecurity event not occurred?

I'll take that question. So yes, we do anticipate additional expenses associated with the incident itself. We don't expect those to be material, as Blair mentioned in her opening remarks, we do have a comprehensive cybersecurity policy that covers the majority of the cost we would anticipate, including the majority of the costs associated with the $4.5 million in expenses to date. And in terms of sort of the -- and we've treated that as you can see as a sort of onetime in nature, it's an add-back to our adjusted -- in our adjusted EBITDA calculation.

In terms of recurring costs associated with cyber, we've always aspired to have a cyber control environment that represents best practices. This cyber event, not getting too into it, but I think it was pretty clear that this was a zero-day vulnerability. And what that means is this is something that could not have been prevented. It was not known to anyone except the threat actor, and it was -- it happened to our software provider, Oracle. But there are things that we expect that we can continue to do to reduce impact for the risk of those things. But from what we can see, we expect to be able to absorb that into our outlook and don't anticipate any kind of incremental operating expenses on our recurring expenses as a result of this.

Okay. Great. Understood. And then just last quick one for me on the stock-based comp side. Blair, obviously, you mentioned the $30 million, of course, is not going to be recurring going forward per quarter, but is there any sense that you can give now as a public company of kind of how that stock-based compensation will look going forward, maybe a range of percentage of revenue or something like that, or how you're thinking about it would be helpful.

Yes, sure. I appreciate the question. So the large noncash expense of $29.5 million in Q1 '26 is not indicative of our expected long-term annual run rate for stock-based compensation, and it was principally the result of expense from modifying pre-IPO stock options that were granted years ago. They were structured in a way that didn't contemplate an IPO. And the modification of such stock options, which were mark-to-market, represented $23 million of the $29.5 million of the total noncash SBC expense in the quarter. So once we've anniversaried the IPO date, we wouldn't expect that to be an ongoing expense.

There were also some share grants as of the IPO -- associated with the IPO that vest over a 3-year period. So once we recognize the expense associated with that, we would expect our stock-based compensation to normalize. And I suggest that you refer to Form 10-Q for more detail in terms of our stock-based compensation.

Yes. One thing probably worth mentioning is the grant you'll see, if you look at the proxy that was subsequent to the IPO. Based on the outside compensation consultants, that grant was at a level that would be a little higher on a per participant basis given the IPO than future awards. So it's difficult to predict where that will land given that's a process that will be evaluated in the future by our Board, but those would be higher than what I would anticipate on a per participant basis in the future.

Your next question comes from George Tong with Goldman Sachs.

You provided some additional color on the earnings threshold test of gainful employment. Can you talk a bit more about how programs performed with the debt-to-earnings test?

Yes. Thanks, George. I'll take that question. We've been looking at the debt-to-earnings ratios associated with the gainful employment regulations as they were constructed under President Obama. And as you know, those were never actually implemented. And then as they were contemplated under the Biden administration. And so that's all proxy analysis internally over the years. But our -- what I can say is that our average borrowing trended in the right direction across all programs. Our average earnings trended in the right direction across all programs.

The last official analysis, which is a little dated right now, suggested very little risk if the gainful employment regulations were to be implemented. So we feel good in light of gainful employment regulations. And based on our understanding of actually where the regulations are going, we are seeing that the regulations are going to converge with the legislation and the One Big Beautiful Bill Act. So in terms of any accountability that would affect our ability to offer Title IV, it will be only an earnings threshold metric as we understand it currently. And there'll be some reporting requirements potentially on debt-to-earnings, but nothing that would affect our eligibility for Title IV.

Got it. That's helpful. And then with respect to detection and verification measures put into place to fight fraud and suspicious activity, can you quantify or ballpark what impact that had in the quarter in terms of growth and what you're expecting and what you're contemplating in the guide?

We're not really in a position to do that. What I can say is we saw nothing in Q1 that puts any concern in the outlook that we provided in Q1, which is why we're reiterating our guidance. We feel good about the controls that we put in place. They've been effective and continue to be effective since we implemented them earlier in Q4. So we've seen consistency and we've seen consistent improvements in productivity on a per enrollment rep basis. So we see it as a net positive, and it's been reflected in our outlook.

I will give you a little bit of color that because the activity continues to exist in the marketplace, this is not something that you can just put on cruise control. We have very effective controls, and we have very effective metrics. So it's something that we're constantly calibrating and making sure we're managing, but it's been well managed and sort of become part of our normal operation since we put it into place. So hopefully, that's helpful. But in terms of giving you more specific quantification, we're not in a position to do that.

Your next question comes from Jeff Silber with BMO Capital Markets.

Sorry to go back to some of the regulatory items. Beyond the earnings premium test, I guess there's some loan caps that are going to start beginning next July. I know they affect graduate and professional programs. You don't have as much exposure there. But if you can give us a little bit of color on what you think the exposure might be.

Yes. Thanks, Jeff. From any internal analysis we've done, nothing's changed. And we don't see any material impact expected from loan caps, removal of loans, changes in Pell offerings, workforce Pell, none of those other items that were contemplated in the One Big Beautiful Bill are anticipated to have any kind of material impact on us.

All right. That's great to hear. And then as a follow-up, I know it's only the first quarter of the year, but -- and you didn't provide specific guidance for the quarter, but I think you handily beat most expectations. Are you just being somewhat more conservative in terms of not changing your guidance for the rest of the year because of that?

Good question. The way we look at it coming into this call is we had a solid first quarter. That includes our fall enrollment, which is great. We set a strong foundation for the year. We feel really good about that. We're in the second quarter, still early in the year. And based on the seasonality of how our quarters work, we're coming right out of the holidays, which is a very seasonal period for us. So our students are off for a couple of weeks in December, for example. So it's just early in the year. And so at this point, we think it's prudent to have reiterated our outlook for the year based on Q1.

Your next question comes from Stephanie Moore with Jefferies.

My apologies. Can you hear me better now?

Yes.

My apologies. I wanted to follow up on some of the commentary from a B2B standpoint. If you could give us an update on how some of those employer engagement is going this year? Any opportunities we can see for continued growth in that vertical would be helpful. And I'll stop there.

Okay. Thanks, Stephanie. Yes. So it's consistent with what we've shared in the recent past. Our account management structure has been effective at helping us build deeper penetration with our current employer affiliates. We came into the year with an expectation to continue to grow that, and we've seen that happen effectively into Q1.

We did seed some investments in some newer incremental growth. So we have an account management team focused on actually adding new employers. We have 2,500 employer alliances, but we're seeing some opportunities in adding new clients and approaching the conversation differently than we've in the past since we have some newer products that help employers with needs beyond the degree program offerings.

And so we're seeing some success there. That's helping drive some of the growth. So that account management focus we expect to continue, to answer your other question, to drive the growth that we're expecting going forward.

And maybe just as a follow-up, you spoke in the -- actually your last answer to the last question about kind of the seasonality of the business. As you continue to see strength in the B2B side, does that change the traditional seasonality of the business that we should think about, maybe not necessarily this year, but in future years. Would love to hear your thoughts.

Yes. We're not anticipating any -- and I jumped right in here. So Blair looks at our seasonality much closer than I do. But from what we can see, we have seasonal patterns that have been pretty consistent, whether or not B2B or B2C. So there's no -- there are seasonal patterns associated with B2B that are driven by the timing of reimbursement and things like that, that may have an impact over time, but I don't think that's something that I would anticipate having a meaningful impact going into like next fiscal year. The seasonal patterns for the most part for our students, given most of them are working adults, are pretty consistent across both B2B and B2C.

Your next question comes from Rob Sanderson with Loop Capital.

I have two, please. First, just on -- it's been -- you've held enrollment pricing consistent for I can't remember how many years, but a long time now. And obviously, the cost of education has been moving higher in the market. So you suggest you've got sort of large and growing umbrella versus broader industry trends. Could you just sort of -- I mean, price guarantee, I think, is important to your marketing message, but sort of under what conditions might you consider using price as a growth lever? And then I've got a follow-up on AI.

Thanks, Rob. Yes, the way we think about price is we believe based on our assessment of the markets that we operate in that pricing could be a lever, but we also believe long term that affordability is going to matter more and more to our students. We've been very effective at driving operating leverage into our model for quite some time. I think our pricing hasn't changed since 2018, and we've seen consistent improvements in our ability to improve student outcomes and reduce the cost to deliver those outcomes. And that's from a lot of things that we've been doing, but heavily from the investments in our tech and data foundation.

And we believe that we can continue that. And we've talked a lot about AI being -- it's almost serendipitous this moment we're in because these investments really position us well to continue to do this, leveraging AI technologies.

And so when we contemplate the future, we believe that we can continue to build that operating leverage in ways that offset inflation and other drivers of cost. If we were to see that dynamic changing, price is a lever that we could choose to pursue. And we have a lot of forward visibility in the business. So I think that is a lever we could be proactive with if necessary.

And then over time, I think as we deepen these relationships with employers and that value proposition gets stronger and stronger and differentiation grows, that's the area that I think over time, we'd like to drive pricing is really based on the value that we're delivering in the marketplace. But for now, we continue to believe that we can hold pricing constant and drive up our margins the way that we have put out in our outlooks.

Great. Now, I did want to talk a little bit about AI. You mentioned just on the call or on your prepared remarks how you've been implementing AI into the curriculum and you're helping learners sort of prepare responsibly to use this new technology. But can you offer any thoughts on just future job displacement and the need for reskilling because of AI? And is this a trend that your enterprise affiliates are talking about or perhaps thinking about preparing for?

Yes. I think that -- absolutely. Our belief based on everything we can see across our leadership and our organization and working with employers is that there is going to be displacement and there is going to be change in the workforce and that the jobs of the future are going to be held by those that are fluent in using AI to drive value in organizations.

Now you can get deep into that, and there's studies that come out almost weekly now about what the future looks like in 5 to 10 years. But we're confident that that's the direction things are going. And I think this is a nice moment in that every organization has to look inward to figure this out with their workforce and think about the future.

So we are hearing this feedback from employers. But frankly, as an organization ourselves, we're contemplating the same things. And we can see the power of AI, but we also see the power of our team members and our people and augmenting the capabilities we have across our teams with the capabilities of AI is very much the focus on now into the distant future, and we're seeing a lot of that with employers.

So I think there's going to be segments of the economy where there may be displacement fully. And so we're very cognizant that those that are affected by that, we want to be able to provide them programs and offerings that move them into the jobs that exist and those jobs are going to require AI skills. And then for most other jobs, it's the ones that are going to keep the jobs and advance the workforce are the ones that are going to be fluent in AI, which is why it's a big focus of our curriculum.

That concludes our Q&A session. I will now turn the conference back over to Chris Lynne for closing remarks.

Thank you, everyone. The first quarter of fiscal 2026 reflects a strong start to the year and continued progress against our strategic priorities. We're encouraged by the momentum we're building and excited about the opportunities ahead as we remain focused on expanding access to personalized career-relevant education and supporting student success.

I want to close by thanking our faculty and our entire team for their dedication to our mission and for keeping students at the center of everything we do, and thank you all for joining us today.

This concludes today's call. Thank you for attending. You may now disconnect, and have a wonderful rest of your day.

Thank you for standing by, and welcome to the Phoenix Education Partners Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Beth Coronelli, Vice President of -- Investor Relations. You may begin.

Good afternoon, and welcome to Phoenix Education Partners Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. Speaking today on the call will be Chris Lynne, Chief Executive Officer; and Blair Westblom, Chief Financial Officer. Before I hand you over to Chris, please keep in mind that certain statements and projections of future results made in this presentation constitute forward-looking statements, that are based on current market, competitive and regulatory expectations and are subject to risks and uncertainties that could cause actual results to vary materially.

Listeners should not place undue reliance on such statements. We undertake no obligation to update publicly any forward-looking statement after this presentation, whether a result of new information, future events, changes in assumptions or otherwise. Please see our public filings, including our latest Form 10-K and earnings press release filed today and available on our website for a discussion of risk factors that relate to forward-looking statements. In today's presentation, we use certain non-GAAP financial measures.

You should consider our non-GAAP results as supplements to and not in lieu of our GAAP results. We refer you to Form 10-K and earnings press release for reconciliations to the most directly comparable GAAP financial measures and related information. I'll now turn the call over to Chris.

Thank you, Beth, and good afternoon, everyone. Welcome to Phoenix Education Partners' first earnings call following our IPO in early October. We appreciate you joining us today as we share our results of the fourth quarter and full year ended August 31, 2025. Today, Blair and I will discuss performance highlights, recent developments and our outlook for fiscal year 2026.

We appreciate your continued support and interest as we begin this next chapter as a public company. At the University of Phoenix, our mission is to expand access to higher education that helps students gain the knowledge and skills to achieve their professional goals, enhance the performance of their organizations and contribute to their communities.

Serving working adults has been at the heart of our mission since our founding nearly 50 years ago. Our student body consists primarily of working adults who are seeking opportunities for career advancement, a growing segment of higher education. 75% are currently employed while pursuing a degree. The average age of our student is 38 years old. Over 50% of our students are first-generation college and almost 2/3 are caring for a family while pursuing their degree.

We serve this underserved population by putting the needs of our students first, offering flexible career-relevant programs that empower working adults to grow professionally with programs tailored to the realities of balancing work and life. We operate a mission-driven culture built on modern technology, strong academic programs and a data-informed student experience, all centered on student success. Today, the university currently offers 72 degree granting programs and 33 nondegree certificate programs, each aligned to career relevant skills valued by employers.

As part of this skills-aligned curriculum, our students have earned more than 900,000 skill badges, which serve as microcredentials, demonstrating mastery of specific competencies applicable in the workplace. Our transformative journey as a private company allowed us to focus on and deliver significant improvements in student retention, completion and satisfaction rates, demonstrating the strength and scalability of our model. As we begin our next chapter, we're continuing to focus on delivering strong student outcomes through personalized, career relevant and affordable solutions, positioning the university for continued momentum and profitable growth in the years ahead.

In fiscal 2025, we delivered solid financial performance in line with expectations outlined during the IPO process, which reflects the strength of our mission-driven model and focus on student outcomes. Average total degrees enrollment grew to nearly 82,000 in fiscal 2025, up from approximately 79,000 in fiscal 2024, supported by strong student retention throughout the year. Expansion of enrollment affiliated with our employer relationships remained a key growth driver this year.

Enrollment through these employer relationships grew to 32% of average total degreed enrollment, up from 30% in fiscal 2024, demonstrating strong sustained demand from working adults through this channel.

As the U.S. workforce evolves due to advancements in technology and the half-life of skills continues to shorten, employers are increasingly prioritizing relationships with education providers that align with retention and upskilling strategies. We believe our affordable, adaptable and skills aligned programs remain attractive to employers that are focused on building and retaining talent.

We continue to focus on improving student outcomes and increasing operating efficiencies through the use of AI and automation. We are leveraging machine learning and AI across the student journey to enhance marketing, retention and student-facing effectiveness and efficiency. Our technology platform supports long-standing models such as student engagement monitoring and AI-assisted enrollment support. And we are expanding into a wide range of AI capabilities that enhance personalization, streamline operating workflows and improve both student and staff experiences.

As an update on accreditation, earlier this month, our College of Nursing received a 10-year accreditation from the Master of Science and Nursing Program from the Commission on Collegiate Nursing Education, a testament to our faculty and staff's commitment to academic excellence and professional quality. From a regulatory standpoint, we have a strong foundation and ongoing practices to promote compliance across all key metrics. In August of 2025, the Department of Education renewed our Title IV program participation agreement and approved recertification through June 30, 2031, reaffirming our continued eligibility for federal aid programs.

Following the recent resolution of the federal government shutdown under a short-term funding measure last week, we note that the shutdown had no material impact on our business or our fiscal '26 outlook. During the temporary lapse in federal tuition assistance funding for active duty military students, we provided short-term financial relief to ensure their studies could continue uninterrupted, demonstrating our ongoing commitment to supporting students through periods of uncertainty and helping them stay on track towards their educational goals.

In Q4, we continued to experience strong applicant demand and sustained improvements in enrollment productivity. We moved certain processes that deter and identify unusual enrollment activity to the top of the enrollment funnel at the application process. As expected, this stopped unusual enrollment activity earlier in the process and enabled our enrollment representatives to better serve our prospective students, resulting in increases in enrollment productivity. We continue to streamline this process, which is leading to continued improvements in productivity.

We're continuing to enhance efficiency across the enrollment process by using advanced analytics, automation and artificial intelligence to better identify prospective students and personalized engagement efforts that are designed to lower acquisition costs and support improved conversion over time. Combined with automation and AI-assisted tools and enrollment, counseling and financial aid, these initiatives are designed to improve the overall student experience while driving continued efficiencies in our cost structure.

These factors as well as continued improvements in retention supported the 5.7% year-over-year increase in average total degreed enrollment for the fourth quarter and support our outlook for fiscal 2026.

As we look ahead to fiscal year 2026, we're encouraged by strong retention trends and steady demand across our programs. Our continued focus on student success and the learner experience is intended to support sustainable performance and position us for long-term growth. Becoming a public company marks an important milestone in our transformation, and we believe that we have built a strong foundation to deliver accessible skills-aligned education that empowers working adults to build job-relevant skills and pursue their professional goals.

We'll continue to advance our mission through innovation, technology and a deep commitment to helping more adults achieve their educational and professional goals. With that, I'll turn it over to Blair to walk through our financial results and outlook for fiscal year 2026.

Thank you, Chris, and good afternoon, everyone. Before reviewing the numbers, I'd like to note that unless otherwise stated, all comparisons are year-over-year. My comments today will cover our financial results for the fourth quarter and fiscal year 2025, key operating drivers and our outlook for fiscal 2026. In the fourth quarter, we delivered strong results as we finished the fiscal year. Net revenue grew 7.2% year-over-year to $257 million, supported by a 5.7% increase in average total degree enrollment to 79,300 students.

Adjusted EBITDA rose 36% to $56.6 million, reflecting improved retention and related flow-through of increased net revenue, which underscores the strength of our operating model. Net income was $17.6 million compared with $10 million a year ago, mainly due to higher revenue and improved operating leverage, partially offset by strategic alternative expense in Q4 2025 associated with our IPO and the termination of a strategic deal we were pursuing prior to the IPO. Fiscal 2025 was a year of steady top line growth, expanding profitability and disciplined financial management.

For the full year, net revenue increased 6% to $1.01 billion compared with $950 million in fiscal 2024. The increase is primarily driven by growth and average total degree enrollment, which increased 3.7% to 81,900, up from 78,900 the prior year and driven by strong retention. Net income for fiscal 2025 was $135.4 million compared with $115.1 million in the prior year. The increase reflects strong operating performance and continued margin expansion, along with a reduction in lease restructuring expense, partially offset by an increase in expenses associated with our strategic alternatives.

Adjusted EBITDA was up 6.5% to $243.9 million compared with $229.1 million in fiscal 2024, reflecting top line growth and continued efficiency across our operating platform. Adjusted EBITDA margin expanded from 24.1% to 24.2% Instructional and support expenses increased from 42.5% of revenue in fiscal 2024 to 43.3% in fiscal 2025, due in part to an increase in financial aid processing costs as we adjust changes in financial aid processing associated with the new financial aid application and transition to disbursing financial aid funds to students one course at a time, which supports improved retention and responsible borrowing.

General and administrative expenses declined approximately 120 basis points, reflecting natural operating leverage inherent in the business model. We have a strong balance sheet with no debt and meaningful cash flow that supports continued investment in our students and long-term growth opportunities. As of August 31, 2025, total cash, cash equivalents, restricted cash and marketable securities were $195 million compared with $383 million a year earlier. The decrease primarily reflects $251 million in distributions.

Capital expenditures were $22.5 million or 2.2% of revenue, supporting initiatives that we believe will drive growth and further enhance our platform to support the student journey and operational efficiencies. Subsequent to the end of the fiscal year, we entered into a $100 million senior secured revolving credit facility, which was undrawn at close and currently remains undrawn. The revolver provides additional financial flexibility to support operations and liquidity needs if required.

On October 10, 2025, we completed our initial public offering of 4.9 million shares of common stock at $32 per share, including the full exercise of the underwriter's option to purchase additional shares. All shares were sold by existing shareholders, and as a result, the company did not receive any proceeds from the sale. Following our IPO, our capital allocation priorities remain consistent, maintaining flexibility, driving sustainable enrollment growth and investing in initiatives that support student outcomes and enhance operational efficiency. We continue to focus on organic investments in technology and data capabilities and remain open to selective mission-aligned acquisitions that extend our reach into career-relevant learning.

Our strong financial position allows for continued investment in the business while maintaining liquidity and returning capital to shareholders. Consistent with what we stated during the IPO process, we expect to pay quarterly dividends in the annual amount of $0.84 per share, commencing in the second quarter of fiscal 2026 and subject to, in each case, Board approval. Turning to our outlook for fiscal 2026. We are providing guidance for both revenue and adjusted EBITDA.

We expect revenue in the range of $1.025 billion to $1.035 billion and adjusted EBITDA between $244 million and $249 million. These expectations reflect consistent top line growth and disciplined expense management, balanced with ongoing investment to support student outcomes.

In summary, fiscal year 2025 reflected continued progress in strengthening the company's operating and financial foundation. We enter fiscal 2026 with a strong balance sheet, solid cash generation and clear priorities for investment and disciplined capital management. With that, I'll turn it over to the operator to open the line for questions.

[Operator Instructions] Your first question comes from the line of Greg Parrish with Morgan Stanley.

Congrats on the strong finish to the year here. I thought maybe just to start with, unpack your expectations for FY '26. You're exiting at 7% growth, 6% enrollment growth, it's been accelerating and a lot of momentum. So what's driving the implied guidance for revenue of 2% to 3%, maybe sort of unpack that? And then what could potentially drive that figure higher or lower?

Greg, this is Chris. Thanks for the question. So yes, I'll give you a little bit of a backdrop on the revenue trends. If you look at fiscal '25 versus fiscal '24, you'll notice that we had healthy revenue growth at 6%, grew faster than our average total degree of enrollment. When you reflect on what drove that difference, we had stronger progression and retention in fiscal '25.

We also had a scholarship a little over $5 million that we offered to support students in fiscal '24 in June that was not offered similarly in fiscal '25. And then we have the normal sort of timing differences that we will have year-to-year, just given on the academic calendar, for example, for undergrad programs, there's several tracks, 10 starts a year. But depending on where they fall quarter-to-quarter, you'll have a different number of calendar days, different size of cohorts on a year-to-year basis.

The other driver was we did see a higher volume of students that went through our risk-free period in fiscal '25. The risk-free period is something long standing that we've had that has been developed for students that have attributes that correlate with lower success. So we want to give them a try before you buy opportunity.

They have 4 weeks where they can get used to the online course environment and the course materials and a lot of the attributes -- some examples are no previous college credit or interestingly, if they maximize financial aid and they have high Pell grant, those tend to be attributes that put them through that risk-free period cohort. We saw larger volumes, as we've talked about at length during the IPO process and disclosed in our S-1, we also saw a spike in unusual enrollment activity last year.

These are just -- I know we've talked about this a lot with the -- at least the analysts on this call. But we saw a spike in the summer of '24. We've since reflected and recognized that this was related to breakdowns and controls in the Department of Ed's financial aid from the FAFSA process. So what was happening in some cases is students with complete the financial aid form with the Department of Ed, sometimes with false identification and then they seek to enroll in institutions in order to be able to receive disbursements against those funds.

We've always had long-standing processes here, and we were able to see this early and develop very robust controls that we talked about and feel very confident about where we stand with those currently. And we saw really strong results at the end of the year in terms of some of the productivity challenges from that.

But as it relates to the trajectory, we did see large volumes in '25 versus '24 in students that went through that risk-free period. And the unusual enrollment activity and the students with the attributes like I described, they have very similar attributes.

So many of the students that ended up being flagged with unusual enrollment, they also maximize financial aid. They also had no college prior credit. So that's the path at which we were able to control that activity. We did have a higher percentage of students that did end up persisting beyond the risk-free period into the initial courses and stopped out in their earlier courses.

So despite the fact that our retention improved healthily in fiscal '25, we did have a higher percentage of students that didn't persist beyond the initial courses. And that did increase that revenue per average total degreed enrollment in fiscal '25 versus '24. So when you look forward to fiscal '26, part of what you're seeing in our outlook is, I mean, one is we're a new public company, and we want to put an outlook out there as a new company that we feel very comfortable with achieving, of course.

But two, is related to the fact that currently, the students that we're bringing in are showing the attributes that we focus on in our enrollment process. We have a higher volume of students that have a higher propensity to succeed. For example, those are transfer credits. We're growing our B2B channel. And so we're not expecting to have the same experience in fiscal '26, but that revenue trajectory will sort of reverse in '26 and that's reflected in the trends that you're seeing in our outlook.

I think what's important to mention in addition to all of that, just to provide color, is -- we talked a lot in the IPO process, but it's worth mentioning again that when we were putting the controls in place, an unusual enrollment activity, which we think we've handled very well. We noticed that -- or we actually made a decision in Q4 to move those controls, the detection and verification to the top of the enrollment funnel at the application process. We did this to better deferred the volume from even getting into our enrollment funnel and interacting with our people. That was effective.

And so we saw a significant improvement in enrollment productivity because they were better able to sell -- serve well-intended students. So that's helped us return to healthier growth in new students. That's continued. We've continued to refine them. We continue to see improvements in productivity there. So it's important to note that the underlying applicant demand in fiscal '25 was strong.

But we were challenged by having to put the proper controls in place for this sort of existential issue that we dealt with for the first part of the year with unusual enrollment activity which really, in our -- I guess, the best way to articulate is we lost opportunities in the earlier part of the year. And now that we have that under control, we're seeing that healthier growth from new students again. That, coupled with continuing retention, which we're seeing really at all-time highs as we continue to improve in '25 versus 24, are really carrying the underlying business drivers for fiscal '26.

And the next question comes from Jeff Silber with BMO Capital Markets.

I was wondering if you could just drill down into your total degree enrollment by different verticals. And I'm specifically interested in health care and nursing, I know some of the other companies have talked about some of the RN to BSN programs have gotten more competitive. Do you play there? Can you give us any color on that vertical specifically? That would be great.

Sure. We're seeing healthy growth in our nursing programs. It's a smaller portion of our overall total degreed enrollment. That is definitely an area where we continue to see opportunity, and we continue to see higher growth trends. Now we're growing across most of our programs right now. We're also seeing healthy growth associated with B2B, which is driving growth in business, IT, health care and also nursing.

And so I think that's about like -- you've seen our breakdown of our degree programs. The majority are in business and IT. We're seeing growth there. But to your point, health care is a nice opportunity for us, and we continue to see healthy growth trends in that area.

I'm sorry, just to reconfirm, you think you're seeing growth in all your programs? Is that correct?

The majority of them, if we go across the board, -- if I look at all of them, I mean just full disclosure, the one program that we saw really more flatness in last year was education, but we don't believe that was related to any kind of underlying demand trends. They have a lot more to do with some of the productivity challenges that we were wrestling through as we were getting our control framework in place for that unusual enrollment activity. And is that affected productivity, we think it had an impact on our education vertical.

And the next question comes from Jasper Bibb with Truist Securities.

I was just hoping you could give a bit more detail on what you're assuming for enrollment growth and revenue per student underpinning that '26 revenue outlook?

Yes. The -- well, the revenue growth -- I mean, the guidance we're providing, Jasper, right now at the revenue growth level, which is in the outlook that Blair provided I do expect some reversing of the really higher revenue per student trends comparatively to say previous fiscal years that I mentioned in fiscal '25, we saw some of the growth in revenue per student due to students that persisted only into their initial courses.

That reversal will bring -- if you do the math on revenue per average total degreed enrollment that will bring down that sort of formulaic metric in fiscal '26. We expect that to normalize at the end of the year. So at the later part of the year, likely primarily in Q4, you're going to begin to see trends that are more consistent to expectation in terms of average total degreed enrollment growth and revenue. And then when we look at the out years, we provided the guidance during the IPO process that we're expecting mid-single digits in revenue growth, and we continue to be confident in those -- in that outlook.

If I could just ask a quick follow-up. So about the kind of quarterly cadence of revenue in your outlook. I guess, as you kind of lap some of these headwinds you talked about in fiscal '25, it sounds like some of the back half of the year, the growth will be a little bit stronger than the first half. Just any more I guess is that accurate? And then any more detail you can provide on the quarterly cadence would be helpful.

Yes. I appreciate you asking that question because, yes, we have these sort of headwinds as you refer to them in terms of working through some of the challenges associated with getting the infrastructure in place and unusual enrollment activity. That did -- in one way that did actually lose us opportunity. We saw productivity challenges in terms of lower marketing efficiency, lower productivity enrollment. We're seeing that reverse already.

We saw a reversal in both of those in Q4 and expect that to continue in fiscal '26. But we did have some of that revenue of those students that didn't persist beyond the initial courses. So arguably you could argue that's a headwind. I think it's the right type of headwind because we're attracting higher-quality student mix into the institution.

So if I think about it, we're not providing quarterly guidance, but I will tell you that this was concentrated through Q2 and Q3 of last year. And so that's why we're expecting to reverse back to trends that you would expect based on our underlying sort of fundamentals in Q4. I do want to reinforce something because I know this is a lot as we kind of talk about these trajectory shifts year-to-year as we're seeing healthy new student demand, and we are seeing new student growth.

We are seeing very healthy retention. So the fundamentals driving this year are healthy, which is why we're confident in the outlook that we provided.

And the next question comes from George Tong with Goldman Sachs.

I wanted to go back to the impact of suspicious activity controls enrollments. Can you quantify how much of the slower enrollment growth in fiscal '26 is due to less suspicious activity compared to, say, friction and legitimate enrollments? And then maybe talk about what gives you confidence that unusual enrollment activity won't spike again the following year and then force you to put some more controls in place that could impact enrollment?

Yes. George, thanks. Yes, great question. So it's hard to quantify specifically. But just to step back and so you understand what we're doing in our controls. We have advanced algorithms that have proven to be very effective. We have collected a lot of data and have expanded these algorithms where we have a high level of accuracy in identifying any risk of what you refer to as suspicious activity. And so when we hit thresholds, we'll stop matriculating that student or that prospective student immediately.

Now whether or not that is actually a student that is exhibiting this bad actor behavior or not, we don't always know that. But we wanted to make sure we put controls in place to ensure that we had this issue managed. And I think as you've gotten to know us, like that is always going to be our first priority. So the early part of the year, a lot of the cost of that was we were -- these controls were further into the enrollment process. So we still had these students interacting with our people.

And that created productivity challenges where you had lower conversion, which meant your marketing spend was less efficient. And our enrollment representatives weren't able to manage well intended students as well for obvious reasons. So that was a big driver. When we moved those controls up to the top of the application process going into Q4, we saw significant productivity improvements in the enrollment funnel because we had very little of this activity in the funnel. So we saw enrollment representatives, conversions went up.

They were doing a better job serving well-intended students. We did have a little bit of friction. I know we talked about in the IPO process in that -- and we could literally measure it and see it and that we were creating controls. We were sending a lot of students to a verification loop in the application process, and that did catch some of the well-intended students. So we had some friction there. And that friction, we've been continuing to calibrate and we've been more effective in removing as we go forward. So today, we feel a lot better about that even than we did in Q4.

And to your question about how do we know about whether or not we're going to deal with this again in the future. What I'd say is this activity is out there, like it's pretty well documented now that there's a lot of unusual enrollment activity in this space. So this is just a capability we've built that we feel is necessary that we feel really good about, but we're constantly looking at this.

Not only do we have the controls to detect, verify and deter, but we're constantly looking at the data and updating the algorithms so that we can catch the activity early in the process, advance our algorithms and continue to deter it. So we feel good about our process. It's demonstrated consistency since we've put it in place at the end of Q3 when we completed that process. It's consistently been effective at keeping the matter under control.

The last thing I'd like to mention, George, is just as a reminder, this -- the root of this issue was a breakdown in controls and the identity verification process with the Department of Ed. And they have publicly acknowledged that in the early summer. We met with the department in September, and we were confident that they've got a good handle on this and that they're going to put good processes in place with their new FAFSA in the near future here.

And so that really should tamp down this issue for the entire higher education sector, which will be great. And that process of meeting with the department also reinforced the confidence in our control structure as well.

And the next question comes from the line of Griffin Boss with B. Riley Securities.

My question is regarding technology investment. So you talked about during the IPO process, the $500 million investment that was made into the technology platform. I'm curious what sort of capacity you have under the current platform? You've grown average enrollments from 70,000 to 80,000 over the last 2 to 3 years. Curious if you have the capability to expand enrollment another 10,000 just as a placeholder number without significant tech investment or what the expectation for investment is in the future to get that next 10,000?

Yes. Thank you for that question. Yes, we have plenty of scale on our platform to manage growth well beyond 10,000 incremental students. I would say that the investments we've made, we have that scale. We have a cloud-first, digital-first platform, very data-driven. What we're excited about is really the evolution of our investments in AI.

Part of what we shared with you in the IPO process is that we've been doing AI and machine learning for several years. And so we have a lot of scale in terms of a lot of traffic coming to our website generated from our brand and marketing and then a lot of opportunities, one, to help those prospective students become new students as well as once they become students, we have thousands of opportunities to personalize that experience, leveraging data.

And what we're seeing right now in this sort of AI moment with generative AI and Agentic AI are some really powerful use cases where we can really expand that capacity. So we're not -- we're early days in this, but from a technology investment perspective, yes, we have the scale and capacity. But what we're excited about is we've got a lot of use cases in production right now that we think are going to really elevate the value through an efficiency perspective, a student outcome perspective as well as our ability to expand growth.

And so I added a little bit there, but I just wanted to emphasize that, that is an area of focus for us that we're excited about.

The next question comes from Rob Sanderson with Loop Capital Markets.

My question is related to policy. Could you speak maybe to some of the announcements on priorities from the Department of Ed earlier this month and anything that investors should understand whether it's called for accreditation reform or anything else. And -- and just maybe up level a little, are there been any surprises on how changes outlined in the One Big Beautiful Bill Act are moving into implementation and what changes under new laws might mean for the university?

Thanks, Rob. Great question. Nothing has changed in terms of the updates in this area. I mean, obviously, there were some -- maybe not obvious to everyone, but there were some announcements this week that I'll speak to in terms of maybe where the Department of Education may end up potentially in other agencies and the like. But that was even sort of out there as a possibility back when we were going public.

So nothing's really changed is really the punchline. But let me just give you a little bit of color. In terms of the One Big Beautiful Bill, we -- at a high level, there were a lot of things in that bill that we talked about, the [ Grad ] loan limits, the PLUS loan was eliminated. There were limitations on various types of Pell grants. All of those we didn't expect and still don't expect to have an impact on our students. There is the earnings threshold that we shared that could have an impact on some of our programs.

But based on the knowledge we have today, we don't expect any material adverse impact, and we feel like we're in a good position to manage through anything that may come our way on that. So nothing's really changed there. What's left is the negotiated rule-making process with the Department of Ed. They did have their first phase of it, and some of the loan limits were discussed, and that all sort of fell in line with our expectations. So nothing new.

They are going to take up the earnings threshold and some other matters in the next two sessions in December and January. And so there's a lot to learn there. But we feel really good about the interactions we're having with the department and with the process. And so there's nothing new that is concerning us. We feel generally pretty good about everything that we understand as it relates to the Department of Ed and to the Big Beautiful Bill.

On the latest discussion, and it's pretty recent, there was, I think, the letter from Secretary McMahon about creating partnerships across agencies. So I think the headline is that this administration is looking to reduce the footprint of the official Department of Ed. And this may be done by moving aspects of the Department of Ed into other agencies.

From what we know, we've had a very responsive department. So the post-secondary unit, it's been a two-way relationship. We've got our 6-year program participation agreement. They were very responsive and helpful in that process. So that's been our experience. If it's a lift and shift or a partnership, we don't anticipate any of the discussion that's going on in the press to impact us there.

We feel the same about loans and grants. In fact, that's an area where we've actually seen this department, we believe, we can't see on the inside, but it looks like they've invested in enhancements in technology and the process. We met with them to talk about some of these changes around the FAFSA. So we feel good about that process. And if those resources move somewhere else, we wouldn't expect that to have any implications on our university. So A little color there, but the punchline really, Rob, is nothing's changed.

And I'm showing no further questions at this time. I would like to turn it back to Chris Lynne for closing remarks.

Okay. Thank you, everyone. Fiscal year 2025 marked another year of meaningful progress across the university. We're excited about the next chapter of our journey as we continue to transform lives through accessible, high-quality education I want to close by thanking our faculty and our entire team for their unwavering commitment to our mission and for keeping our students at the center of everything we do, and thank you all for joining us today.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.