Pearson (LSE:PSON) Q3 2026 Earnings Call

0:00 Good morning everyone and welcome to Pearson's 2026 nine month trading update. There will be two ways to submit questions today. If you'd like to ask your questions personally, please use the numbers that are displayed on screen. The lines will open following the prepared remarks. Alternatively, please submit your questions using the questions tab at the top right of the screen and we will address them in turn at the end. And with that, I'll hand over to Omar. Thank you, Alex. Good morning, everybody. It's a pleasure to be with you today and thank you for joining us. I'm here in London with our CFO, Simon Robson. Before we begin, let me briefly touch on the executive change that we announced this morning. I'd like to thank Tom App Simon for his two decades of service to Pearson and his significant contribution to the evolution of virtual learning and higher education.

0:48 Both business units are in better shape today because of Tom's leadership. I'm pleased to welcome Kate Eberle Walker, who joins us in December to lead our newly formed US Higher Education Business Unit. Kate brings deep experience across technology and education and will work closely with Tom to ensure a smooth transition. In addition, I want to provide an update on Vishal Gupta, Vishal has been doing a good job driving progress within our enterprise business, in particular establishing and operationalizing a new enterprise sales team that can sell the entire range of Pearson's offerings. Vishal will continue to lead the new enterprise business unit and I've asked him to take on an expanded role as Chief Business Development Officer tasked with establishing a wider business development function across Pearson.

1:38 Turning now to our trading update. You'll have seen this morning's announcement already, so let me expand on the key takeaways and then we'll open it up for Q&A. Today I'd like to make four points. First, we have delivered another good performance with group growth accelerating to 6% in Q3. This performance reflects the breadth and diversity of our portfolio, the strength of our brands and offerings, and our role as trusted verification infrastructure for skills globally. Second, this progress means we remain firmly on track to deliver our full year 2026 guidance with a narrowed profit range reflecting confidence in our outlook.

2:25 Third, we are deploying capital in a disciplined manner to drive long-term shareholder value and accelerate our strategic progress. You can see this through the acquisitions of ITS and Workerra, which we announced this quarter. And finally, today, we're announcing an important step towards building an even stronger company for the future. Our objective here is simple, to optimize Pearson's structure to orient on growth and unlock our full potential. These changes will be better for our customers, better for our business, and simpler for investors. Let me take each of these in turn, starting with our performance. We have delivered another good performance with sales growth accelerating to 6% in the third quarter as expected.

3:16 Our portfolio strength underpins the group performance, offsetting puts and takes at the business unit level. In assessments and qualifications, we are pleased to report good momentum from new contracts. Our agreement with Anthropic to deliver its global certification program reinforces our leadership position in skills verification. Since launch in July, we have moved quickly, delivering more than 230,000 secure tests Even though it's early days, strong demand signals reinforce our conviction that AI adoption is increasing the need for trusted, validated skills with Pearson uniquely placed to benefit. Virtual learning delivered another standout back-to-school result.

4:04 Enrollment performance was driven by continued demand for alternative schooling options and strong execution, underpinning our confidence for the academic year ahead of us. In English language learning, we are lapping a difficult comparator in PTE following last summer's test enhancements, alongside navigating an ongoing challenging market. Our teams are continuing to execute well, positioning us strongly for when the end markets recover. Enterprise Learning and Skills continue to benefit from new vocational qualification contracts coming on stream and the monetization of our strategic partnerships, specifically outcome-based skilling programs for our technology and software partners. Finally, higher education performance sits below our expectations.

4:52 While our core US courseware business delivered a solid back to school result, progress was not as strong as we had anticipated, and market conditions in K-12 created additional headwinds. In response, we're taking further targeted action to strengthen product innovation, commercial execution, and talent, supported by a new organization structure that sharpens our customer focus. Improving performance and closing the gap to peers over time remains a clear priority, and our go-forward reporting will provide investors with greater visibility in our ongoing progress. Our third quarter performance, together with the resilience provided by our diversified portfolio, means that we remain firmly on track for the year.

5:38 We have narrowed the profit range to reflect our confidence in the outlook, while continuing to expect a very strong cash result. More importantly, our performance provides further evidence that Pearson is becoming a more predictable mid-single-digit growth company, which is exactly what we set out in our medium-term framework in 2024. Visibility into the fourth quarter is good, and it's worth remembering that FY25 was heavily weighted towards Q4. Let me turn now to our disciplined deployment of capital through strategic M&A. The framework that guides our decisions is straightforward. We continue to invest in assessment and verification infrastructure, the core of Pearson. And we're building capabilities to scale in our medium-term growth vectors where we see attractive growth opportunities and a clear right to win.

6:31 The acquisitions we announced this quarter with ITS and Workera demonstrate that approach. The acquisition of ITS brings a trusted assessment technology partner in-house. They are deeply embedded in the professional association assessment ecosystem and will help broaden the services we can provide to customers. Their capabilities also support growth in adjacent areas, including mid stakes assessment and international markets. Workera is a pioneer in enterprise assessment and skills verification. Its AI-powered skills intelligence platform complements our existing offerings and will help us build a more comprehensive skills product portfolio for enterprise customers. Workera already serves blue chip customers, including Siemens Energy, ServiceNow, and Booz Allen, which will open further growth opportunities for Pearson.

7:24 and Workera's talented AI native team will play an important role in driving innovation and scale across our enterprise skills offerings. These acquisitions reflect our disciplined approach to capital allocation. We will continue to invest behind them to drive scale and product innovation, supporting our growth plans. We expect both acquisitions to be accretive to Pearson's medium term revenue growth. Finally, I want to turn to the changes we announced this morning on how we will report and operate. We're sharing this news now to give you early visibility of how our reporting will change from January 1st next year. Of course, Alex and the IR team will support you through the transition ahead of our preliminary results, including providing necessary pro forma restatements.

8:14 Today our portfolio is organized through five business units which internally reflect more than 20 specialized sub units. This structure is a function of our history and it now needs to evolve to give us greater agility and consistency across the business, improve our go-to-market capability and to unlock greater value from our offerings and expertise across the whole Pearson platform. The new model creates four larger, more predictable, customer-led businesses with clear ownership of customers, offerings and performance. Supported by strengthened core capabilities, this will bring greater commercial focus, closer customer relationships and more consistent execution.

9:01 This is fundamentally a growth move. It will help us to identify and pursue opportunities more effectively, bring our distinct offerings together around customer needs, and build the platform for Pearson's next phase of growth. Importantly, this is not a change in strategy or portfolio. We're optimizing our structure to allow more effective execution. Let me take you through the new approach. We're organizing Pearson around two core customer groups, learning institutions and enterprises. This gives us a clear organizing principle with accountability closer to the markets that we serve. We will operate through four larger business units, US K-12 led by Art Valentine, US Higher Education led by Kate Ebley Walker, UK and International Education led by Sharon Haig alongside a dedicated enterprise unit led by Vishal Gupta.

9:59 Each will have P&L accountability and stronger ownership of its growth drivers. Together, these larger, more focused customer-led businesses give us a more balanced platform and support our ambition to deliver sustainable, predictable, mid-single-digit growth over time. The offerings within each unit reflect the customers they serve. They bring related capabilities together focused on customer needs, helping us serve customers more effectively and pursue opportunities with greater focus. Importantly, assessment and verification infrastructure remains at the core of Pearson and runs through the businesses. Alongside the new customer-led structure, we're investing in four core capabilities to unlock growth. We will align product investment more closely with customer needs, strengthen business development across strategic customers and opportunities, bring greater consistency to how we commercialize our offerings, and create a simpler, more joined up customer experience through driving best practice across the group.

11:07 We have already made good progress in each of these areas, as outlined at previous results. The new operating model represents the next natural step in Pearson's evolution from a holding company into a modern operating business. So why does this matter? The structure is designed to unlock Pearson's full potential with benefits across the business. First, it supports growth. Sharper customer focus and a better connected portfolio will help us deepen relationships, identify opportunities and bring more of Pearson's expertise to bear. Second, it improves performance. Elevated capabilities and more consistent execution on ways of working will strengthen how we develop products and serve customers.

11:53 and third, it increases agility. Clearer accountability, standardized core capabilities and decision-making closer to customers will help us respond faster to their needs and to market opportunities. And also as a result, it makes Pearson simpler. Four larger, more focused and more predictable businesses with a clear set of offerings will give investors good visibility of our growth drivers and progress. So to close today's call, I'd like to repeat our key takeaways. We've delivered another good performance with group growth accelerating to 6% in Q3. We remain firmly on track to deliver our full year 2026 guidance with a narrow profit range reflecting confidence in our outlook.

12:41 And we're deploying our capital to drive long term shareholder value and accelerate strategic progress. and we're optimizing our structure to orient on growth and unlock Pearson's full potential. These changes will be better for our customers, better for our business and simpler for investors. With that, Simon and I would love to welcome your questions. Operator, over to you. Thank you. We'll now begin the Q&A session. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from David Nolan from Morgan Stanley. Your line is open, David. Please go ahead.

13:28 Hi, all. Thanks for taking my questions. The first one is just on ANQ. So obviously, ANQ accelerated meaningfully to 10% growth in Q3, yet both the kind of group and divisional guidance remained unchanged. Can you maybe just walk us through what's driving that and what to assume for Q4? and then maybe on virtual learning so at h1 mark was growing high single digits and but stride reported kind of declining enrollments earlier this week is that market kind of still holding up or are we kind of seeing a shift to market share here in person is really kind of taking share and in this market thank you Good morning, David. Good to hear you. I mean, I'll let Simon jump on the ANQ question and maybe I'll pick up the virtual learning one.

14:12 Yeah. Hey, David. Good morning. So, yeah, as you say, good result for ANQ. So maybe go back a step and just reiterate good performance for the group. So really happy with the 5%. Thank you very much. The growth in Q3, it's principally within ANQ, it's principally in PPA. So the new contracts we've brought on there, obviously we've got the benefit of the contracts we brought on in the second half of 2025 coming through. So we've got a full quarter of those this year.

15:00 We've also got Google Cloud and Anthropic that we brought on earlier in 2026 benefiting Q3 this year. Going on to Q4, as you know, very tough comp in A&Q from last year. We had the new contracts I just referred to when they came on in Q4 2025, helped growth in that period. So that comp is very tough. It's also true that on exam and test delivery, whilst predictable, it's not always the same period that those tests and exams fall in. So actually, we've benefited from the phasing and the delivery of some tests in Q3 in 2026 and those won't fall therefore into Q4 this year so that's that's also contributing to the slowdown in growth there but big picture is you know good nine months here to date five percent growth and very pleased to and confident in reiterating the full year guidance of mid-single digit Yeah, thanks, Simon. I mean, and actually, David, I'll just add a little point on ANQ.

15:59 So clinical performs super strongly. Pearson school qualifications perform super strongly. And even when you look at PPA, Pearson Professional Assessments, it is a complex portfolio of very large customers down to very small organizations. And actually, I love that. I love the diversity of that portfolio. It was very strong because we saw growth across the board, including, as Simon said, in the tech companies especially, and obviously more recently with the AI labs, with Anthropic. You asked a question about virtual learning. And I mean, the short answer is we're still very excited about that market. The school choice movement in America appears to be gaining momentum, not decelerating. And so actually that is driving more and more options in different states. And so I think we feel good about that. The thing that we have an eye on is how the nature of the options evolve. So Connections Academy, which is the main brand that we use for a chunk of virtual schools, is super strong and performing incredibly well.

16:54 And I think 17% year to date growth in virtual learning. So that's great. and we're looking at all the other options emerging in the market to make sure Pearson is on the front foot to take advantage of that opportunity going forward so feel good about it for now thank you so much who's next thank you our next question comes from Kieran Donnelly from Citi Kieran your line is now open please go ahead

17:21 Thanks a million uh yeah three from me maybe firstly Omar um just in terms of the operational structure change and the positive impacts you alluded to in the presentation could you just give us a sense of timeline how long does it take to kind of fully implement these and you know maybe going beyond when we should start to see that positive impact come through to numbers and maybe two for Simon um Simon just following the comments on phasing and ANQ could I press you to maybe quantify the impact in Q3 on that and then thirdly just on the updated EBIT range can you just talk us through the moving parts for the updated range and any comments around perhaps ANQ margin for the full year That's great. And good morning, Karen. Thank you.

18:14 So on the operating model, let me sort of step back a little bit. It was just over two years ago, like I think July 24, where we came out and we said Pearson will be a mid-single-digit growth company and will consistently expand margins, 40 bps or so on average, over the medium term. And that's the path that we set out. And honestly, at the time, even I think some folks in the market were skeptical that we would do that. Under the hood, in addition to delivering against those commitments, under the hood we've been improving the performance of Pearson across a wide range of areas. Like how we think about our career architecture and simplifying salary bands and roles and titles and all these things that were very fragmented across the company. In the op model picture that we showed you on the chart, We showed a picture that said, look, yes, it's five business units, but actually under the hood, they were more like 20-something units, each with their own corporate functions, with their own technology stacks, with their own vendors.

19:06 So there's a degree of fragmentation there. And we've been working quietly on improving processes across the board, from sales operations, from vendor consolidation, from product and software engineering, just across the board to make that better. which is why now is the perfect moment for the next natural step in the evolution of the model towards something that just aligns us very obviously and directly against customer segments. I think growth comes from customers. And if everyone knows exactly who their customer is, which products and offerings are lined up against those customers, the P&L accountability is super clear right down to the individual facing off that customer, then we can position for driving consistent strong growth going forward. And so I feel very good about the shift that we're making. I don't see it as a particular moment in time so we're implementing I mean obviously the detail design work is happening like now January 1 we will lock into the new model our people will be mapped the customers will be mapped all of that sort of thing that you'd expect and I expect us to continue to stay incredibly focused on our markets and making sure we deliver better and better offerings for those customers and over the medium term Pearson will consistently be a mid single digit compounder expanding its margins. And that's what this is all about.

20:21 So it's very much a growth oriented move and just taking out some friction from the fragmentation that we have today into a simpler structure going forward, which I think will also make us nimbler, more agile, and hopefully easier and simpler for investors as well. Simon.

20:36 Hey Kieran, so let me start with the EBIT question. So we have narrowed the range for our EBIT outcome for the full year which reflects actually the good performance in the nine months to date and the fact we have really good visibility going into Q4 and feel confident in the outlook which is why I'm comfortable to narrow the range. The range previously was six 40 to 685. So pretty wide. We're nine months in now and happy to narrow that to 650 to 675, keeping the same midpoint. But it speaks to the confidence that we have in the outlook for the business there. And then you pushed on Q3 on A&Q again a little bit more. So I'll just I won't reiterate the whole answer, but maybe add a couple of other things, which is why I'm sort of talking about the delivery phasing between Q3 and Q4 in ANQ. So things like the UK TOPS deal, obviously we had the benefit of that in Q3, so that was contributing to the plus 10%, but we don't have the impact of that into Q4. and we saw some similar things around the testing delivery in US student assessments where tests fell into Q3 and won't fall into Q4. So those things are contributing to why we still see A and Q for the full year low mid-single digits and why Q4 will be slower than Q3.

21:53 But in summary, the group is compounding at mid-single digits. Who's next? The next question comes from James Tate from Goldman Sachs. James, your line's now open, please go ahead.

22:08 Hi Omar, hi Simon, it's James from Goldman. Got three questions, please. Firstly, on the portfolio, you know, Pearson made a couple acquisitions that you talked about recently, as well as the resegmentation today. So I guess as you go through that process and look across the portfolio, do you feel you have the right mix of businesses to deliver your midterm strategy? Or could we potentially see disposals alongside further acquisitions? Secondly again following up on professional assessments given the anthropic certification program only launched in July how should we think about the ramp from here over the next couple of quarters and more broadly could you give us an update on the pipeline for new contract wins and renewals. Lastly on PT I think market conditions clearly remain challenging I think you previously expected English language learning to return to growth in Q4 but I couldn't see that language in the release today so how should we think about the business returning to growth in Q4 and looking into 2027 are there some levers in your control to return PT to growth even if the market backdrop remains challenging?

23:14 Right, so James, I'm going to take the fun two first questions and I'm going to give Simon the PTE question because he'll enjoy that one. Now, I mean, so on the portfolio, I think we've got a great portfolio, James. Pearson is a diversified bet on learning education with the broader scope of products and services across the world in the publicly listed markets in our space. and that broad portfolio, that resilience is what gives the group the ability to consistently compound even when there are puts and takes in some of the subunits in a given quarter. And so yes, I feel good about the portfolio and yes, I also feel good that the new structure will give incredible transparency and visibility into the performance of the units. I think investors will find that valuable and sure, like it'll put more performance focus on some of the units exactly as they should be.

24:03 and we want that. And so overall, I feel good about it. I mean, you mentioned that M&A is part of the mix and ITS and Work Area, like welcome to those two fantastic teams. They augment what we're doing in assessments in the core business and in enterprise skilling. And so you could imagine that we're constantly looking at useful bolt-ons that could make a difference to augmenting and accelerating our organic growth strategy, whether in assessments, in next-gen education, in early careers, and in enterprise skills. And so I feel very pleased that the teams have landed on these deals that bang on strategy and very good cultural and product fit with our portfolio. And so yeah, the new structure just makes growth easier and that's great and so excited about it. You asked about anthropic. So I think, I mean, this thing started in July. So it's very recent. I think we've done something like 230,000 tests so far.

24:58 So I'll let you sort of calculate how many people are out there in the world needing to get certified for cloud skills in the coming period. It obviously is a rocket ship as a company. Our team is incredibly focused on just delivery and delivering to very, very high quality, obviously for them and all of our core customers. It's very, very important that we retain the security and the fidelity of all those assessments, and we keep innovating at the pace that these customers expect. These are demanding customers in the tech segment, and Pearson is the provider across the entire tech segment, including with AI Labs. And so I feel very good about that, and I mean, the pipeline is strong. And so looking forward into 27, as you know, the nice thing about ANQ is you have incredible visibility. And as Simon said, yes, Anthropic, but also Google Cloud, ServiceNow, Salesforce, all of these amazing companies are partners for us. And we're looking to just lean in and serve them as best as we possibly can, because that's great for them and great for our business and great for the end learners.

26:02 Over to you with a fun question about PTE, Simon.

26:04 Hi, James. So I'll come back to PTE in a second, but it's relevant, I think, given what's the situation in ELL to just step back and look at the whole portfolio. And this is the reason I like the fact that we've got a resilient, diverse portfolio so that when one of our BUs is having a tougher time, the other one's performing well. So overall, we're hitting guidance and, as I say, growing 5% for the nine months year to date. For PTE specifically, so that market is just proving tougher for longer than we expected. Not ruling out growth in the fourth quarter, but it's certainly more uncertain than we thought it might be. And that's just the situation in the market. However, worth saying that over the 12-month period for PTE, I'm confident and feel good about our share.

26:56 and so on. So we're in a good place to benefit from that. And the other thing worth saying, if I may add, James, is you'll remember that the comparable for PTE is tough, Q3 on Q3, because last year we launched essentially PTE 2.0, and that drove a surge in demand back then. And so that, in addition to the migration context that everyone is aware of, is part of the reason. Who's next? Thank you. The next question comes from Nick Dempsey from Barclays. Nick, your line's now open. Please go ahead.

27:36 Yeah, good morning, guys. Morning, Nick. I've got a slightly dodgy voice, so apologies if you can't hear me perfectly, but I guess in US higher education, for the last couple of years, you have flagged new approaches to the sales process, bigger focus on inclusive access, other ways in which you were looking to improve and we haven't really seen a boost in the growth rate here so I'm just thinking if it isn't possible to get this division to grow faster than two percent within a group aiming for mid-single digit does it make sense to keep this as part of Pearson? Second question in enterprise learning and skills it's a small division and you've added new contracts from a bunch of interesting tech groups but we're still growing at six percent in Q3 Does that mean that while those contracts are helping in ANQ, you aren't really generating much in the way of new revenue, conceptual new revenue, which I guess would show up in this division's growth?

28:37 And lastly, can you give us an indication of what subdivisional detail you're going to give us in these new divisions? So will we still be able to see virtual schools, which have been really volatile, and also English language learning as subdivisions? Okay, so Nick, thank you very much. I'm going to take some of the challenging ones this time, and then maybe Simon will pick up on how we think about the sub detail, although it's obviously a space that we would love people like you, your thoughts on actually, in terms of how we can help you most. On higher ed, I just want to be super clear. Like two or three years ago, our higher ed performance was completely unacceptable. It is in a much, much better place today. And the team under Tom's leadership have moved it to genuinely a much better spot.

29:25 The products are stable. They were not in the past. and that is earning us benefit with educators. The sales team is much stronger and the sales operations data sets are strong today. There was even a year ago, some of that wasn't in place. So, there are already a lot of improvements under the hood in US high rate and as Simon pointed out, in core US courseware, actually the growth in Q3 was quite good, it was creditable. The overall higher ed, in the way we document it today, includes the K-12 part and the international higher ed part. And so what we're doing in the new structure is we're going to put incredible clarity on the US Corbett, because actually that is a perfectly good market. It's great gross margins. The growth, as I said, is creditable.

30:10 It's not exactly where we want to be. And actually, the competition show us what is 100% possible, and there's nothing that they're doing that we cannot do. The truth is, is we were slow, I think, on getting deep into inclusive access. And so that is ramping, and you'll see that in the numbers. But it's still not at the level it can be. And some of the defragmentation of the tech platforms, again, I think Pearson took a long while to get to grips with that. I feel happy with how that's playing out now. And that will give us benefits in the future. So overall, I think we're going to be good with US higher ed. It'll be very transparent to investors looking forward in the future structure. and I feel good of it as part of the overall portfolio. Your next question about enterprise ELS, you're exactly right.

30:55 We set up the ELS sales team to sell all Pearson. And indeed, that's been incredibly successful. So actually, there are benefits, yes, in A and Q, actually also in English, in the institutional side. And so the enterprise sales team have done a great job on that and elevating those businesses. In Q3, the vocational business was super strong. So I'm very, very happy with it. Now, enterprise solutions you referenced in saying, where are the numbers there? I think we've always been very transparent. That comes from a very small starting base. And so the laws of small numbers govern. The contracts that we've struck with these big enterprise partnerships are multi-year contracts, and they ramp over the annual basis. They're not designed to ramp on a quarterly basis.

31:40 That's a little bit more arbitrary of what happens at a given quarter with a specific customer. but the trend is 100% in the growth direction and we feel very good about that. Again, next year there'll be just one enterprise division and you'll be able to look at the whole of our enterprise performance overall and I think that will be helpful as well. So I feel good about where we're trending with ELS including in Q3 so far and certainly for the year. Simon, over to you for the segmentation question.

32:08 Hey, Nick. So again, just to step back on the restructure. So the restructure is about making the business better positioned for growth. So it's ultimately about being better for customers, being better for the people at Pearson, being better for the business. But also one of the factors that we've taken into account is we believe it's going to be better for investors and analysts to understand the business and to make it simpler to understand. you know the next few months for us and in particular for Alex and the IR team is to work with you guys and to help you and to form how we're going to report going forward what levels of detail build the you know the comps and map across the existing business into the new business and we're very committed spending a lot of time making sure we can make that clear so that you're in a good place when we come back and start reporting on our basis through 2027.

32:59 Thanks Simon and thank you Nick. Any other questions? Yes, our next question comes from Charlie Muir-Sands from BNP Paribas. Your line is open, Charlie. Please go ahead.

33:13 Yes, morning, guys. Thank you for taking my questions. Three for me, please. Firstly, within professional assessments, obviously the opportunities around assessments of new AI capabilities for workers is growing very rapidly. I just wonder what you're seeing in this, let's call it, more traditional space of IT or also bundling it together IT and AI assessment volumes overall are they accelerating or or decelerating or declining secondly in US students you've obviously flagged the win of the Pennsylvania contract given the population is slightly larger there than New Jersey which you'd previously lost can we assume that you've got to get a proportionate commensurate benefit from that and what kind of phasing should we expect around the revenue recognition ramp on that and then thirdly on cash conversion you've obviously confirmed 90 to 100 cash conversion for the year is that inclusive of your acquisitions and if not can you give us a rough budget for how much M&A spend will be in your cash flow this year and what liabilities be outstanding for 27 plus thanks That's perfect Charlie, thank you. I'll take the first question and then I'll have Simon pick up the next two, if that's okay.

34:35 What I should say about professional assessments, and you're asking essentially about AI and IT, Pearson is the world leader at professional assessments for the tech industry globally. And I'm sure you know that, Charlie. And the reason of that is we actually have many, many years of building trust with those organizations who are some of the world's most demanding organizations. having trust in terms of the quality and the scale of our network and our ability to help take their IP and convert it into assessments and certifications for people to really validate that they have the skills that they need to have for their work. And so I feel very, very good about how that whole portfolio is performing. And honestly, it's going to keep getting better.

35:21 I don't really distinguish between IT and AI. I mean, in the world of cyber, you now need to understand how to generate agent swarms of your own to defend yourself. In the world of SaaS, all of the SAS providers are injecting a lot of AI into their tools and then obviously with the AI labs they're generalizing beyond models into the application layer in many areas as well so Pearson needs to be on the front foot with all of that and I believe we are and we'll continue to innovate with all of those companies but overall demand for bringing technology into the workplace is increasing and will continue to increase every CEO I talk to and of which are many talk about how occupations and roles have to be reconfigured with AI in the workplace. And that demands people with skills to be able to do that.

36:09 you will see us particularly next year talk to you a lot about AI fluency and what that is and how Pearson is generating a set of offers and services in that space to meet global demand which is not just in the tech industry but you know way beyond that as people realize that their normal employees need to become citizen developers in a way that can use AI to improve how they work and today what you see in companies is individual contributors are improving their productivity with AI companies are not yet improving their productivity and there are some reasons for that and I think we're going to be in the middle of helping unlock that value for corporations and so yeah I'm very excited about AI fluency and what we can do around assessments for that across the whole IT and AI suite looking into next year but Simon over to you on our student assessments school assessments question

36:59 Hey Charlie, so US student assessments and the Pennsylvania contract first. So you can think about that new contract as when we get up to sort of full run rate on that contract, they'll be broadly similar in size to the New Jersey contract. In terms of timing, it starts for the 27-28 academic year and actually given the phasing of within an academic year, actually most of the benefit starts to come through in 2028. So we'll see a small benefit in 2027 from that contract at the back end of 2027 but really it sort of hits the road from 2028 onwards. On M&A and cash so we haven't put out a number yet but I'm happy to sort of give guidance that roughly you know the two acquisitions are 200 million pounds in total and you'll see the details of that obviously in our full year results and that's not part of the 90 to 100 percent cash conversion number.

37:55 Thank you. Is there anyone else? Thank you. Our final question comes from Steve Lexty from Deutsche Neumas. Your line is open, Steve. Please go ahead.

38:08 Yeah, morning. Can you just, on higher education, just go in a little bit deeper in terms of the lowered outlook there. I'm presuming from what you say, it's more the international side, but just flesh that out. And then you did mention US courseware growth is good, and you called it credible. Can I push you for a number on that? So that's kind of the first question. and then the second question just on virtual learning I hear what you're saying about enrollments and feeling good about the market but is it possible to unpick kind of market share gains against a big competitor that's listed in the US to see you know what the normalized numbers should be and what if there is a sort of short-term benefit you're getting in that area thanks Right.

39:01 So Steve, thanks for those questions. So on higher ed, actually, I have to tell you, International Higher Ed did great in Q3. And I was very proud of what that team did, because that was a team that probably didn't have sufficient focus for a while. And under that leadership, they've done a very good job in Q3, and I think that bodes very well. No, the issue in higher ed was, as Simon hinted, was around K-12 adoptions. So one of the higher ed products selling into the upper end of school is something called advanced placement. and that you only really get visibility of how that performs during August and what happens is when states are in doubt about tax receipts or federal funding and it seems like that happened because we can see that pattern across a lot of our competitors then they delay adoptions and that did impact part of what we document as higher ed but it's the K-12 part and so that dragged down the number somewhat in Q3 relative to what we were hoping and expecting.

39:59 The US courseware number, I don't think we segment that out broadly, but if Simon won't kill me, I'll say to you that it was at the lower end of mid single digits it was performing. So again, it's okay, it can be better. And so that's again something that we are leaning into with the team and making sure that we continually build for more strength going forward. With virtual learning and the enrollments, I mean again, I'm obviously not going to comment on our friends across the water and what they're dealing with. I am very pleased with what the team is doing on enrollment, in recruitment of parents, in retention of parents, in improving the offering. I mean, there's a huge focus with Jess and the team now on making sure that the offering continues to drive better attainment outcomes for the kids.

40:48 And you'll expect to see that as a big focus for us. At 17% year-to-date with virtual schools, I think we could probably assume that the share position is good, but we don't have the latest figures in terms of the whole market, so I'm not going to make one up and get it wrong here for you, Steve. So anyway, thank you very much for your question. Thank you. We currently have no further questions waiting on the line, and I'd now like to hand over to Alex. Yeah, thank you. We've got two final questions, both on the resegmentation, so I'll ask them together. Firstly, why make the segment an internal structure change now and not two years ago? And secondly, can you just expand a little bit where Pearson Clinical sits in this new operating model?

41:38 Yeah. So on the org change, I mean, I'll be brutally honest with you, is I hate making operating model and org changes. Because they're disruptive to people, they introduce risk, they risk distracting people from focusing on their customers. And so I don't make those moves lightly ever. And so you wanna be very, very careful when you do that. And frankly, people don't like them, and so they resist them. And so then you have to also work to overcome resistance and create the change impetus. So in order to have the change impetus, you need three conditions to be true. The first one is people need to universally agree that the current isn't quite good enough. And I have now more than enough data from our people telling us that the lived experience of working through a fragmented set of 23, 24 different units is painful.

42:32 in terms of processes. They also tell us that we suboptimize customer service for our customers when we have to pass customers between different units to address something. So for example, PTE, Pearson Test of English, is run on the Pearson Professional Assessments platform. It's in two different businesses, and so sometimes customers can get punted between them, and that's just not good for anyone. So the first condition is in place now, which is people really genuinely agree on the improvements we can make from the current. The second condition is people have to be excited about where you can get to. And I think people at Pearson now are super excited that Pearson can lead on the future of education globally with AI. and the future of skills at work with AI and that vision is exciting and motivating a lot of our people so people are like okay good like so we've got the current that's not ideal the future is gorgeous let's go for it but the third condition is the most critical one is that people believe it Thank you very much.

43:48 And as I was hinting earlier, over the last two years, we've been working on all of that. So there's been a lot of work done under the hood to transform the core processes, the data foundations, the capabilities of Pearson. So that actually when you put the new structure in place, you can hit the ground running and go fast. And so that's actually where we are, and that's why the timing is perfect now. And I'm excited actually for what this will unlock for the future of the company in the coming months and years. And so I feel very good about that. So thank you for your question. On Pearson Clinical, I think that's very simple. When you go under the hood of clinical, actually you'll find that it's about half-half between special needs for kids in K-12 in the US. So that half will be in the K-12 business in the future.

44:33 And the other half is actually more focused on life sciences and clinical trials and enterprise situations with Psychologists in small companies. And that will go to the enterprise part. And actually, I think that that focus of go to market with dedicated teams who are specialized in K-12 and specialized enterprise is going to help accelerate the clinical business even further than its actually brilliant performance that it's already had so far this year. So thank you so much for your questions. Very appreciated. Any other questions, Alex? Over to you for final remarks. Thank you, Emil. Well, all of you out there with your interest in Pearson, thank you so much. We really, really appreciate your interest in us. Hopefully, you've heard from today's comments that we're positioning the company for more growth, more performance, and more agility in the future.

45:21 And I'm excited to see you at prelims next time. Thank you ever so much.