Phoenix Education Partners I Aktie

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.