Phoenix Education Partners (NYSE:PXED) Q4 2026 Earnings Call

0:00 Hello, everyone. Thank you for joining us and welcome to Phoenix Education Partners' fourth quarter and fiscal year 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Beth Coronelli, Vice President of Investor Relations. Please go ahead.

0:28 Welcome to the Phoenix Education Partners Fourth Quarter and Fiscal Year 2026 Earnings Conference Call. Speaking on today's call are Chris Lynne, our Chief Executive Officer, and Michael Cochran, Interim Chief Financial Officer and Senior Vice President, Corporate Development. 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 call. The risks related to these forward-looking statements are described in our filings with the SEC, including our annual report on Form 10-K filed today and other public filings. We will also discuss certain non-GAAP financial measures.

1:23 You should consider our non-GAAP results as supplements to and not in lieu of our GAAP results. Reconciliations to the most directly comparable gap 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.

1:49 Thank you Beth and good afternoon everyone. First I want to introduce you to and thank Michael Cochran, our Interim Chief Financial Officer. Michael joined Phoenix Education Partners as Senior Vice President of Corporate Development. He came to us from Morgan Stanley and brings extensive capital markets experience and knowledge of our business, having worked closely with management in its return to the public markets. We have a comprehensive search underway for a permanent successor. As we previously announced, Blair Westblom has left Phoenix Education to pursue other opportunities. Blair played an important role in the company's journey, including helping guide the university through its return to the public markets. We thank her for her contributions and wish her well in her next chapter. This month, the University of Phoenix is marking its 50th anniversary.

2:37 For five decades, we focused on expanding access to higher education for working adults, helping them build the knowledge and skills to achieve their educational and career goals. That mission remains highly relevant today, particularly as technology and AI change how people learn and work. The fourth quarter and full year fiscal 2026 reflected disciplined execution across our strategic priorities. We delivered modest growth in revenue and enrollment, supported by continued strength in retention, and employer affiliated enrollment with stronger adjusted EBITDA growth in the fourth quarter. While we continue to invest in the student experience, academic innovation, technology and AI. Our multi-year gains in retention, including a 510 basis point improvement in our most recent cohort comparison, reflect sustained investment in personalized engagement, technology-enabled support, flexible learning pathways, and skills-aligned curriculum, helping students stay engaged and progress towards their goals.

3:40 Employer-affiliated enrollment grew nearly 13% year-over-year in fiscal 2026, representing approximately 35% We believe this sustained growth reflects the value of our skills-aligned curriculum, which enables working adults to develop and apply career-relevant knowledge while earning their degrees. As we have discussed over the course of fiscal 2026, the integration of AI into online search is fundamentally changing how consumers discover and evaluate products and services, including higher education. During the second quarter, significant changes in search algorithms reduced visibility and traffic to our website, creating a headwind to enrollment, particularly in our non-employer affiliated channel. We believe the initial impact of these changes has stabilized, and we've been moving rapidly to adapt our marketing strategy to this evolving environment.

4:33 Importantly, we believe AI-driven search represents a change beyond how prospective students find us. It is changing how they evaluate their educational options, placing greater emphasis on credible, evidence-based information that demonstrates the value and differentiation of an institution. In response, we've substantially evolved our approach to digital marketing. We've structured our marketing organization and distribution to systematically create and distribute hundreds of evidence-based claims, demonstrating the university's differentiated value across the digital ecosystem. Through our website, third-party validation, social media, alumni advocacy, and other channels, we're working to ensure that the strengths of our programs, student experience, and outcomes are increasingly visible and reflected in AI-generated search results.

5:25 While still early, we're seeing encouraging improvements in both citations and sentiment across thousands of AI search prompts that we track. We believe this approach positions us to compete more effectively as AI increasingly influences how prospective students research and select educational institutions. It is also important to understand how these changes affect our financial performance over time. Our strong retention helped maintain modest growth in overall enrollment and revenue despite the pressure caused by the AI impact on search. However, these pressures that began in the second quarter of fiscal 2026 will have a more pronounced impact on the revenues in fiscal 2027, as those students will represent a larger portion of our total enrollment population.

6:10 That's an important reason we view fiscal 2027 as a transition year. We believe we're positioned to see improving enrollment trends as the year progresses. We've accelerated investments in four key growth areas, expanding our employer relationships, strengthening our academic portfolio, becoming more targeted in how we are reaching prospective students, and increasing conversion of the meaningful traffic to our website. We expect these strategies to gain traction over the course of the year. While these enrollment improvements will take time to translate into reported revenue, we believe they position us to exit fiscal 2027 with improving enrollment momentum and a stronger foundation for returning to sustainable growth in line with the long-term expectations established when we went public.

6:56 In addition to continued retention gains, let me discuss further these four strategic priorities for growth. First, expanding employer-affiliated enrollment. This channel has become an increasingly important Thank you for joining us today. Historically, accounts with dedicated management have achieved average penetration rates approximately three times those of unmanaged accounts, underscoring the opportunity to drive additional enrollment within our existing relationships.

7:45 Today, our programs are offered through tuition benefit programs for approximately 2,500 employers. We believe the success also reflects the differentiated value of our skills-aligned curriculum. which enables working adults to develop knowledge and skills they can apply on the job with every course they take, creating value for both employees and employers. We further strengthened that proposition by embedding applied AI skills throughout our curriculum. Together, these factors have helped drive sustained momentum in employer affiliated enrollment, including the nearly 13% growth we delivered in fiscal 2026. We see a significant opportunity to continue expanding this channel. And as we navigate the disruption in online search, we're accelerating investments in this proven growth channel.

8:33 Second, accelerating the expansion of our academic portfolio. We have the strongest planned pipeline of new programs since 2021, focused on growth and high demand offerings informed by student interests and changing needs of employers. This includes expanding in health care. which currently represents approximately one third of our average total degree enrollment, as well as other high demand fields within business, technology, and AI. 60% of our new programs over the next 18 months are in nursing, healthcare, and specialized areas of business. Included in our new program pipeline is our continued commitment to providing students with more efficient and affordable ways to earn their degrees with expansion in numerous three-year bachelor's degree pathways. We launched our first in criminal justice administration in September with encouraging early results with additional pathways planned in healthcare, AI, IT, and business specializations.

9:29 Third, We're becoming more targeted in how we reach prospective students. We're focusing on industries and programs where we see favorable growth dynamics, while broadening our acquisition approach beyond the channels most affected by changes in online search. This includes supplementing our broad-based institutional marketing with more targeted, program-specific campaigns and direct channels to reach prospective students with a strong interest in specialized, career-relevant offerings. Healthcare related programs have been particularly strong, with enrollment increasing approximately 13% year over year. And fourth, improving conversion. We are using technology and AI to personalize engagement, reduce friction, and help prospective students identify educational pathways that fit their needs.

10:18 We continue to see meaningful demand of our programs, and we've made significant progress in our ability to engage prospective students and convert that interest into registrations. In fact, our prospect to registration conversion rate improved year over year in every quarter of fiscal 2026. To build on that progress, we're expanding personalized outreach and using AI-enabled tools to provide more timely and relevant support through the enrollment process. An example of this personalization includes our ability to help prospective students identify education benefits available through their employers earlier in the process, which increases conversion through the funnel. Additionally, our AI-enabled One-Team Assistant provides our advisors with a comprehensive and proactive view of a prospect's enrollment status, helping an advisor to provide high-quality guidance more effectively, which supports increased conversions and lower enrollment costs. We believe these investments, together with our expanded academic portfolio and employer-supported business, will help strengthen new student enrollment as fiscal 2027 progresses.

11:27 AI is also reshaping the workplace and employers continue to see value in higher education. Research from Lumina Foundation and Gallup found that 76% of U.S. employers said that a degree or credential will remain as important or become more important for getting a job at their organization. The research also found that nearly half of employers expect AI to make college degrees more important over the next five years. We believe this reinforces the importance of domain knowledge and expertise in an AI-enabled workplace. Applying AI effectively requires critical thinking and judgment to evaluate information and apply it in meaningful ways. A college degree helps build that foundation, while ongoing upskilling and reskilling enable working adults to build on their experience and adapt as technology and employer needs evolve.

12:21 Student feedback from recent University of Phoenix surveys provides further evidence of the value of career-relevant skills. 85% of recent University of Phoenix students surveyed reported developing skills immediately applicable to their careers, while 79% of students in our latest student survey expressed satisfaction with their confidence applying AI tools in real-world scenarios. During fiscal 2026, we integrated AI skill-building modules into every course and expanded AI-enabled learning and support We're also advancing our collaboration with OpenAI, expanding access to ChatGPT and supporting its practical application across the university. We've begun working directly with OpenAI and our faculty to explore better ways to support students in using AI and enhance the learning experience.

13:09 Our objective extends beyond teaching students to use AI tools. We're helping them develop the judgment, Thank you for joining us today. Over time, we see an opportunity to become a more strategic partner to employers in workforce transformation, helping companies better understand their evolving skill needs and creating stronger connections between education, skills development, and career advancement.

13:55 That broader vision is an important part of the strategic rationale of our acquisition of Fuel 50, which we've completed on September 30th. Fuel 50, which will continue to operate under its own brand, is a pioneer in skills intelligence. Its AI-powered workforce intelligence platform helps employers understand workforce capabilities, anticipate evolving workforce needs, and connect employees with development and career opportunities. We see Fuel 50 as a strategic extension of our mission, positioning us further upstream in workforce development, where employers are identifying the skills they need to compete and planning how to develop their talent. Over time, we believe Fuel 50's capabilities can deepen our understanding of the evolving skills employers need from their employees, strengthen our employer relationships, and provide valuable insights to inform the continued evolution of our academic offerings. Together, these capabilities support our longer-term vision of building stronger connections between the skills employers need and the educational and career opportunities working adults are seeking.

14:58 We're excited to welcome the Fuel 50 team and explore opportunities to create additional value together. After nearly a decade without increasing tuition, we have updated pricing for new students enrolled on or after November 2nd. For these students, tuition and the resource fee will be presented as one transparent all-in per course price under our locked-in pricing guarantee, with that price fixed through the completion of the students enrolled program. Access and affordability remain central to our mission. We focus on students' total cost and time required to earn a degree, including tuition transparency, accelerated pathways, and eligible transfer and prior learning credits. In fiscal 2026, our bachelor's degree graduates had an average of more than 40 transfer credits, along with additional credits for prior learning applied toward their degrees. For each graduate, that represents more than 13 courses, an estimated 16 months of coursework saved, and more than $17,000 in estimated tuition savings.

16:02 We're also aligning our cost structure with our evolving business, creating capacity to continue investing in our strategic priorities. Following a voluntary separation program in early fiscal 2027, we made additional organization changes. Approximately 5% of our workforce excluding faculty was impacted. We approached these decisions carefully, prioritizing capabilities most important to our students and our long-term strategy. Before I close, I'd like to welcome Michael Weston from Apollo to the Phoenix Education Partners Board of Directors. He brings extensive financial and industry experience, and we look forward to the valuable perspective and contributions he will bring to the board. 50 years after our founding, The environment around us continues to evolve, but our mission remains unchanged. While the financial impact of the fiscal 2026 search disruption will continue to be reflected in our fiscal 2027 results, we believe the investments we're making in channels with proven historical performance and the underlying strengths of our business will drive improving enrollment trends as the year progresses and position us to return to growth in fiscal 2028.

17:12 We're focused on strengthening student outcomes, diversifying how we reach and serve working adults, deepening employer-affiliated relationships, aligning our academic offerings with workforce needs, and maintaining financial discipline. I'll now turn it over to Michael Cochran.

17:29 Thank you, Chris. Good afternoon, everybody. I'm pleased to be serving as interim CFO and to take you through our fourth quarter and full year financial results, balance sheet, and capital allocation, as well as our fiscal 2027 outlook. But before I do that, I wanted to take a moment to thank our incredibly strong finance team for all their support during this transition. Turning to our results, for the fourth quarter, net revenue was $260.7 million, compared with $257.4 million in the prior year period, an increase of 1.3%. Average total degree enrollment increased 2.8% to 81,500 students, compared to 79,300 in the prior year period. This growth was supported by continued strength and retention, which helped offset the AI search-related impact on our enrollment.

18:16 Employer-affiliated enrollment represented 36% of average total degree enrollment for the quarter, up 270 basis points versus the prior year period. Net income attributable to Phoenix Education Partners was $23.5 million, or $0.60 per diluted share, compared with $17.5 million, or $0.46 per diluted share in the prior year period. The increase was primarily due to higher net revenue, lower provision for credit losses, and lower strategic alternatives, restructuring, and other expenses, partially offset by higher share-based compensation associated with our IPO. Adjusted EBITDA increased 8.6% to $61.5 million compared with $56.6 million in the prior year period. Our adjusted EBITDA margin increased to 23.6%, up from 22% in the prior year period, reflecting continued expense discipline and lowered provision for credit losses.

19:13 Lastly, adjusted diluted earnings per share was $1.07, compared with $1.03 in the prior year period. For the full year, net revenue increased 1% to $1.017 billion compared with $1.007 billion in the fiscal 2025. Average total degree enrollment increased approximately 2.2% to 83,700 students compared with $81,900 in fiscal 2025. Net income attributable to Phoenix Education Partners was $88.9 million or $2.29 per diluted share compared with $133.9 million or $3.51 per diluted share in fiscal 2025.

19:58 The decrease was primarily due to higher share-based compensation associated with our IPO, as well as increased advertising expense partially offset by higher net revenue and lower provision for credit losses. Adjusted EBITDA increased 2.1% to $249 million compared with $243.9 million in the prior year. Our adjusted EBITDA margin increased to 24.5% from 24.2% in the prior year. Lastly, adjusted diluted earnings per share was $4.47 compared with $4.50. The decrease was driven by the increase in diluted shares primarily as a result of the IPO. Turning to the balance sheet, we ended fiscal 2026 with $331.7 million of cash, restricted cash, and marketable securities, and no outstanding debt, and we generated $196.3 million of cash from operating activities.

20:53 Our strong balance sheet and free cash flow generation remain a fundamental strength of our business, enabling us to invest in student outcomes in the core business, evaluate strategic M&A opportunities, and return capital to shareholders, all while maintaining our strong financial responsibility standing with the Department of Education. During the year, we returned $32.7 million of capital, including $7.1 million via repurchases of our common stock and $25.6 million in dividends. We continue to reassess our capital return strategy in light of our significant free cash flow generation and are pleased to announce that our board of directors has approved a 10% increase to our quarterly cash dividend to 23 cents per share. Lastly, we continue to build out our M&A pipeline.

21:38 Following year end, we closed our acquisition of Fuel 50 on September 30th and funded that transaction using cash on hand. Fuel 50's operating results will be included in our consolidated results from that point going forward. Turning now to the fiscal 2027 outlook, it's important to first stress that over two thirds of our revenues come from prior years student cohorts, which provides us a high degree of visibility into our outlook. We expect net revenue to be in the range of $970 million to $1 billion and adjusted EBITDA to be in the range of $225 million to $240 million. As Chris mentioned, our revenue outlook primarily reflects the flow-through impact of AI search on enrollment since Q2. Out of prudence, we've also assumed broader search conditions consistent with those experienced in Q4.

22:23 Should those conditions improve, we see a potential path to improved results. Helping to offset this headwind is continued strong retention and progression, the impact of our recently enacted price increase, and the benefit of our strategic growth initiatives, which will become more pronounced as the year goes on. Our adjusted EBITDA guidance reflects the flow-through impact of the lower revenue outlook and expanded investment behind our key strategic growth priorities, offset by approximately $35 million of cost-based savings that were implemented to better align our expense base with our current operating environment, the majority of which were workforce-related. Lastly, this outlook includes 11 months of results from field 50, which is expected to contribute approximately $10 million to revenue and is not expected to have a material contribution to our adjusted EBITDA.

23:12 While we don't provide quarterly guidance, we expect the first quarter to have the most challenging year-over-year adjusted EBITDA comparison, as Q1 fiscal 2026 preceded the surge disruption that began in the second quarter. We expect comparisons to improve as the year progresses, supported by the increasing benefit of our strategic initiatives, as well as our cost actions. As Chris discussed, we view fiscal 2027 as an important transition year as we adapt to the changes in online search and accelerate the investments we've been making in our broader growth strategy. While the financial impact of the fiscal 2026 search disruption will continue to be reflected in our fiscal 2027 results, we expect to return to growth in fiscal 2028 and our long-term growth expectations communicated at the time of the IPO remain unchanged.

24:01 The fundamentals of our business remain strong. We believe the strength of our programs and the value of our degrees will ultimately be an advantage in a world where students are making highly informed, evidence-based decisions. Employer supported enrollment continues to show strong momentum. Our recently implemented price increase will see a compounding benefit to revenues as new cohorts matriculate over the next few years. Retention and conversion continue to improve. Our academic portfolio is creating new opportunities to serve working adults, and the operating leverage we've developed through our technology and AI investments is helping us fund these priorities while still maintaining financial discipline. We believe these factors taken together lay the foundation for us to emerge from this transition with a more diversified growth model, a stronger operating platform, and a return to delivering sustainable growth over the long term.

24:52 With that, I'll ask the operator to begin the question and answer session. We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of George Tong with Goldman Sachs. George, your line is now open.

25:29 Hi, thanks. Good afternoon. You're assuming search conditions remain consistent with 4Q in the fiscal 27 guidance and you see potential upside if conditions improve. Can you talk a little bit more about what you're seeing today that gives you confidence that the AI search headwind has stabilized rather than continuing to deteriorate?

25:53 Hi, George. It's Chris. Thanks for that question. Yeah, so just to bring you back to fiscal 26, and as we discussed in our opening remarks, we saw an algorithm shift in Q2 that was precipitous and quick, and it reset a baseline in terms of The volume we were getting from our branded channels, which is search on our brand SEO and direct type into our website. What we've seen since is essentially a stabilization in that reset baseline for all the quarters all the way through today. and our branded channels. And the best measure of that is really applications. There's a little bit of noise in terms of traffic to our side for obvious reasons, but our applications have been stable through today. So that's the context for that.

26:50 The other thing worth mentioning is in Q4, we did see in our non-brand search, so that is when we pay for keywords that align to our programs that are not associated with our brand, that channel was very strong throughout most of fiscal 26. In fact, it was more efficient than the previous year, and it was growing even after Q2 had that algorithm shift with Google. However, in July, we saw efficiencies plummet going into the fall class, and we believe that was a result of some anomalies, but mainly a lot of competition bidding up terms ahead of the fall class. So that was another area that we saw some unusual activity. This is actually something that happened really after our last earnings call, by the way.

27:48 But we've seen that come back in line to normal range of efficiencies pretty quickly. And it's been maintained there for sort of the recent several weeks. And that, over time, has been a pretty predictable channel. So we think that what happened in July was unusual. Coupling those two areas, I think that would characterize what we refer to as search. But I do want to separate the two because really it's those branded channels that we've been talking about over the last several quarters. They've been relatively stable. And so we're assuming that that stabilization will continue through the remainder of the year in our outlook. but it's also worth mentioning we're not assuming any kind of meaningful recovery in our outlook, which if we do see that recovery, as you said, that would be upside.

28:40 Yep, that makes sense. And related to that, you expect enrollment trends to improve as fiscal 2027 progresses, even assuming current search conditions persist. What specifically needs to happen to drive that enrollment inflection? during the year.

29:00 Yeah, thanks for that question, too. So when we are referring to enrollment trends, what we've been doing is really twofold. So we've talked about search and it's important to note that we made pretty significant changes to how we operate in this new AI enabled environment. So we think we're very well positioned with search and we're seeing stability, but also a level of efficiency that can support our outlook as we look forward. But it's more the diversification into channels that have been proven over time These are channels that require a little more investment up front and have a longer cycle time to when they start to bear fruit, most notably B2B.

29:47 So we've expanded in many ways into B2B. into more direct relationships with B2B, expanding programs and targeted verticals like healthcare where we're seeing very healthy growth. And that is something that we expect to build throughout the year. For B2B, it's just worth noting that there is seasonality there because the tuition assistance programs for most companies follows a calendar year timeframe. So as you build your pipeline of registrations and enrollments, They really don't start to matriculate when they're new until the next calendar year when they can get the full benefit because the benefits are associated with how many courses they take over a calendar year. We're also rolling out new programs.

30:33 That program pipeline is going to be rolled out throughout the year. And then we expect the continuing improvement and conversion from prospect to registration in our funnel. As I mentioned in my remarks, we've seen improvement every quarter of the previous year. And with AI and technology, we're expecting to see continued improvement throughout the year.

30:56 Very helpful. Thank you.

30:57 You're welcome. Your next question comes from the line of Jeff Silber with BMO Capital Markets. Your line is now open.

31:07 Thank you so much. Going back to the quarter that you just reported, if I look at revenues per average degree and enrollment, it did go down. I know it tends to be a little bit lumpy, but was there any specific reason that it was down and what are the implications in terms of your guidance for next year for revenue per enrollment?

31:26 Yeah, thanks. This is Michael. I'll take that. So probably not surprisingly, the biggest contributor to that, which has been the case for a number of quarters and you will expect to be the case going forward, is B2B. These are students who are coming in at a discount to the full rate. I'd say it's slightly offset this quarter by improved progression. But those are really the biggest dynamics that go into this. And again, just given higher growth of B2B channel over time, that's going to become a bigger proportion of our portfolio. So that trend would generally keep all else equal as well. And that's part of the guidance as well.

32:10 And I'm sorry, in terms of revenue per enrollment in fiscal 27, what's the impact of the tuition increase?

32:16 No, sorry. For the tuition increase, so important to note, this only applies to new students, right? So the benefit of that increase really is not particularly material this year, but each year it builds on itself. The next year it's going to be more material, the following year it's going to compound even further. So as far as the actual contribution in fiscal 27, it's not a material element.

32:45 Okay, that's helpful. And then I'm sorry, just going back to the fourth quarter, you did see accelerated growth in average total degree enrollment. Were there any specific programs or degree types that really were behind that?

33:03 Yeah, I'd have to go back and look at the acceleration, but I am familiar with where our programs are growing. Overall, we're seeing growth across our B2B programs. I think that's worth noting. I think it's also the best indication of where there is strength in the portfolio, even in areas that We think we can capture more strength in our B2C portfolio because we're getting a better indication of where value is for both employers and our students. With that said, healthcare is growing at a very strong rate. Healthcare is about a third of our B2B enrollment it's growing within B2B at about 20% and overall for all of our programs for the year it was up 13%. I'm not sure exactly where it landed in Q4.

33:58 And then we see pockets of strength in specialized programs throughout. We have a pretty and a wide range of programs. So it really you have to get to a more granular level to see where the strengths and weaknesses in the portfolio are. So we're seeing a spattering of strength in other areas as well where there's high demand.

34:19 I appreciate the call. Thanks so much.

34:21 You're welcome. Your next question comes from the line of Greg Parrish with Morgan Stanley. Your line is now open.

34:31 Hey, guys. Good evening. Thanks for taking my question. Maybe just where is this LLM shift? Where is it driving customers? We've seen in other places mom and pops, local players being an early beneficiary. What does it mean for you? Is it liberal arts or state colleges that might have an online course or student aid that without AI it might have been more difficult to find? I'm just throwing something against the wall. But maybe just help us understand where the net volume is going. Right now it's just taking away from you.

35:05 That's a great question. I'd be speculating a little bit here in terms of where the net volume is going. When we look at our experience, one thing is we're coming from a history of a channel that has been extremely strong for us. One of the unique strengths that we have is our brand is very strong. that coupled with a history of very data-driven, sophisticated digital marketing has created an extremely efficient channel. So when you look at the disruption, that efficient channel remains a strong channel for us, but we see a drop against our history. But I think our history in some ways is unique to others who maybe don't have as big a brand. When we look at what's happening, I would speculate that there is some element right now that we're creating demand in the marketplace. And then that demand is not only are they going to a new experience, but a lot of their experience of learning about what they want to pursue with their degrees is now captured in that AI mode outside of the university.

36:28 And so that gives them an opportunity to evaluate other programs at other schools. And I think that's part of what we're experiencing is that, yeah, they may be selecting other options. We think there's some evidence that they may be taking longer in their selection process. But I'd be speculating further if I told you where I think that demand's ultimately going.

36:52 Okay, that's fair. It's kind of a tough evolving market at the moment. But maybe just to kind of stay here for a second, I mean, how do you really alter how you're showing up in LLM? I'm sure you've been testing various strategies. I don't know if you've had any early success. I mean, what can really drive the needle in how you're showing up?

37:12 Yeah, thank you for asking that question. We've actually done a considerable amount of work here and have built quite a bit of confidence of how this will work going forward and have even demonstrated to ourselves through our process that we can move the needle. When I talk about reorganizing marketing and our distribution, this is pretty transformational. In this new world we're in, every area in your organization has to rethink the world in terms of how LLMs work and how to optimize. And basically, first and foremost, you have to have a value proposition that you wanna show up in this new AI mode. We have hundreds and hundreds of evidence backed claims that we need to get out in the digital universe.

38:06 We created something that we internally call our evidence factory, but that's really pushing that evidence through a series of mechanisms, either our website, third-party studies, alumni advocacy, social networks, like the whole spectrum, and pushing it through in a way that we've built pretty sophisticated ability to Track prompts. I mean, when I say track prompts, we track over 10,000 prompts that relate to all of the types of prompting that associates with students that may have interest in our programs. and we can see how often we show up in citation volume. We can see the sentiment as we push those evidence-based claims through that process.

38:56 So we've been speeding up our ability to put the throughput through that process. We have numerous examples. One of the recent ones was a HarrisX study that had very favorable results where 98% of employers that had that employed Phoenix graduates were satisfied with their performance. And there was a lot of other really promising or positive data for our students. So we moved that through that ecosystem and we were able to see that citation show up more and more when there were promptings around employer reputation or how do employers view the degree, which we had some sentiment challenges there from opinion sites from a decade or older that we're working through. So we're seeing measurable improvement.

39:45 We've also seen, for example, that claim in channels that we can measure direct attribution back into our system has improved volume and conversion. So that's just one claim we have hundreds. And so that's going to be a big part of our story going forward is really activating this ecosystem that we've built. And we are quite confident that we can make an impact. Now, we're also confident that it's likely to be a long journey, which is why we're not building into the outlook that we provided any kind of rapid recovery in the AI search environment.

40:23 That's great. I appreciate all the color. Thanks. You're welcome. Your next question comes from the line of Jasper Bibb with Truist Securities. Your line is now open.

40:34 Hey, good afternoon, everyone. Just kind of thinking through the fiscal 27 guidance, it sounds like the issue has been more new starts because of this AI transition. Could you just frame for us what you're seeing on new starts right now, how much might those be down, and what are you assuming in your guidance?

40:57 Yeah, I'll take that. Michael may want to add to this. So we've seen an impact, a negative impact on new starts really in the B2C channel. I think it is worth noting that the B2B channel, given it's got a resistance to AI search, we did see new student growth even after the AI search algorithm change. But we're seeing that impact in new starts heavily through this quarter. It's worth noting that prior to this algorithm shift, we had a very strong quarter both for B2B and B2C in terms of new student enrollment in the prior Q1. So that's what we're seeing in terms of trends through today. And then as we look forward, it's going to take some time to build back to growth. throughout the year, primarily due to some of the timing of our newer initiatives.

41:56 One thing that's worth, I mentioned B2B, it's gonna start to kick in more in the calendar year associated with the programs and how we're rolling new students out It is worth mentioning that one positive of having had this disruption that I see is a channel like B2B has been incredibly successful for us. But when you weigh putting resources into an extremely efficient search channel, which was a pretty large percentage of our acquisition channel over time, where you have a very quick cycle time, a very predictable efficiency and unit acquisition cost. It's always been a little bit challenging and leaning in heavily into B2B that has a longer cycle time and ramp up.

42:44 And so, you know, the situation has actually forced that, which I think is going to be, turn out to be a real strength over time for us.

42:54 Got it. And then just wanted to follow up on Jeff's question about revenue for student in 27. I understand the more recent pricing adjustment will be material. But I guess more broadly, as you think about the revenue decline and planning guidance, how much is in enrollment versus revenue per student?

43:12 Yeah, it's a good question. Thanks. I would expect the revenue per student is not going to be the material driver of that. It really is more of an enrollment story. So there's not a whole lot more than that. It's going to be more or less a continuation of the same trends that we've been experiencing for the last few quarters.

43:34 It will be more relevant in fiscal 28 and then again in fiscal 29 due to the sort of compounding build of the pricing changes.

43:46 Okay. If I could sink one more in, I just want to ask how much revenue and EBITDA you're assuming in guidance from 250?

43:55 Yeah, so I think as we said in the prepared remarks, we're assuming 11 months of contribution, $10 million of revenue for Field 50, and no material contribution on the bottom line.

44:09 Okay, got it. Thank you. Your next question comes from the line of Jax Levin with Jefferies. Your line is now open.

44:20 Hey, good evening. Thanks for taking the question. Maybe to just expand a little on our last point on Fuel 50, I appreciate what you've got in here, but maybe just looking for a little bit of color on what some of the actions you might take as that gets integrated to sort of realize some earnings contribution from that going forward, or what are the bigger levers you're looking at trying to pull in the next two to three years to grow that business and to get some synergies with the core?

44:50 Yeah. Thank you. This is Chris. I'll take that question. Yeah, this Fuel 50 was an opportunity that we're really excited about that is very consistent with the vision that we're pursuing at the university, which is frankly longer term in nature that we've been making nice progress with. You know, we've built a Thank you all for joining us today. because our vision is to be a partner to our student through the life of their career.

45:43 And we've made a lot of progress there, but we see Fuel 50 as an opportunity to move upstream, build deeper, more strategic relationships, which we've been pursuing for years with employers so that we can have our finger on the pulse of how skills are changing, especially given the speed at which they are changing in the workforce. And so we see Fuel 50 as an opportunity to build more strategic solutions end-to-end over time. and to build that type of relationship with employers over time. As far as what's right in front of us, our focus is first and foremost to help Fuel 50 continue to accelerate its efforts in becoming a workforce transformation partner.

46:29 They built a great product, but there's work to be done for them to continue to build momentum in the market. We know that when we have more strategic relationships with employers, which we will pursue, that we naturally get an expansion in our core product, which is our degree programs under tuition assistance programs. We think that that synergy opportunity is available to us nearer term, and then longer term, we're looking to really connect that skills to opportunity ecosystem together. I look at this as a long-term opportunity. and many more. We hope to share some of these early milestone gains over the year.

47:12 That's helpful. I appreciate that. And then maybe just to follow up, I appreciate the color on the buyback authorization and some of what you've used up thus far. Is there any way to think about scenarios of how you might try to pace Utilization of that authorization, just looking at the cash on the balance sheet and the current share price and trying to get an understanding of how to think about that. Thanks.

47:35 Yeah, sure. Good question. I'll take that. So I think in broader and so on. So that's the context of capital allocation. Right. That's one of multiple pieces. I think to your specific question around the buybacks, look, if it's if you're asking us, I think we would love to buy back our shares at this price. I think we all agree, at least on our side, that we are undervalued. We have to balance that, though, with the reality that we have a fairly limited float, that we're not trying to have an impact on. And so there's always a little bit of a give and take there. It's a consideration, but I wouldn't expect buybacks in the open market to be a material use of our cash here going forward.

48:31 Got it. Thanks for all the comments. Your next question comes from the line of Griffin Boss with B. Riley. Your line is now open.

48:41 Hi, good evening. Thanks for taking my question. So I just wanted to jump back to the price increases. So when you're looking at 27 and you take out the contribution of fuel 50, top line expected to grow between 3% and 6%, obviously. As you've mentioned multiple times, the majority of that is driven by these AIS or TED ones. But is there anything baked into that guidance for an increased churn or lower enrollment growth due to these price increases? And then on that same page, are you seeing any or expect any pushback from employers in the B2B channel, despite the fact that those carry some tuition discounts related to these increases? Thanks.

49:25 Yeah, I want to make sure we understood some of the assumptions that you stated at the beginning. But in terms of the impact of pricing on churn or any sort of risk in terms of putting a pricing increase into the market, we conducted a very thorough elasticity study to make sure we understood We knew pricing was elastic. It validated that. It also validated that working learners care very much about transparency. and Predictability of Prices. And so we feel comfortable with what we put forward and some indication that it has gone well because the price increase went into effect actually this week. but notifications went into effect over a month ago and we didn't get any real concerns or pushback from any of our constituents, including employers. I think you asked about employers.

50:43 For some of our best programs, those that benefit from those programs are actually pretty shielded from the price increase. In some of the programs, they may take on a little bit of a price increase, but overall, it really didn't have a big impact on their employees, so we didn't hear much from employers about it as well. Great.

51:07 That's really helpful. Thanks, Chris. I appreciate that. Yeah, you're welcome. Your next question comes from the line of Rob Sanderson with Loop Capital Markets. Your line is now open.

51:20 Yeah, thank you. Good afternoon. I've got two questions, please. Maybe just want to go back to the dead horse on the traffic funnel first, but we've been hearing a lot through internet land, pretty meaningful disruption in organic SEO traffic. You mentioned in your answer to George earlier, it seemed like more of a focus on paid keywords. So the question is really mostly, is this mostly an SEO disruption or is it more on paid marketing channels? And then on the paid marketing side, how much of this do you think is because advertising on Google's AI mode is just very new and your teams will have to ramp up competency and Google's ad products are still pretty nascent and are going to get better, something that should probably improve through the new year? Question one, SEO versus SEM, and then I'll come back to the follow-up.

52:07 Okay. Yeah, thanks, Rob. And thanks for letting me clarify some of that. So when we talk about branded channels for us, that includes SEO. It also includes the paid branded search with Google primarily. And it also includes those that come directly to our website. So when we talked about stabilization and what we're seeing, we're really looking at the combination of those three. In terms of SEO, that has been disrupted. I mean, we haven't seen a big recovery in SEO. It wasn't a significant percentage of our overall volume, but I think SEO disruption is sort of here to stay for most enterprises in this new world of AI search.

52:52 The more meaningful portion of that is the paid search on our brand, which historically still remains an efficient source for us. So you are paying for that, but you pay a lot less. And so we look at that as branded because it's had a very similar dynamic to those other channels historically. So that was what I was talking about in terms of branded. I think you caught what I was talking about on non-brand when we had sort of this anomaly in July because non-brand, which is the rest of paid search, that's not our brand, that's been a pretty efficient channel for us most of fiscal 26, but we did have a disruption in Q4 and the beginning of Q1 there.

53:39 And those efficiency levels have come back into normal again. ranges as of the last several weeks. So it feels like it was more of a blip, but something we're looking at carefully. In terms of the other side of your question, look, we think we're early days in AI search. So we could all speculate. I think where Google would likely go would be to find monetization models that have similarities to old monetization models, but in a new environment. So any kind of paid search models associated with AI search, we would look forward to that because we have a history of a lot of strength in being able to optimize channels like that and take advantage of a lot of the strengths we have with our brand and our value propositions I also would anticipate at some point that the organic aspects of AI search are going to start to be easier to attribute than they are today.

54:43 But I'd be speculating like anyone else about what that's going to look like in the future.

54:49 Okay, makes sense. Thanks, Chris. And then a second question. I wanted to talk a little or ask a bit about AI-related demand from enterprise channels. There appears to be tremendous interest. There's a very high recognition of need. There's a belief that it's strategically important, but it seems like still a lot less actual activity. So I wanted to get your thoughts, Chris. What do you think the binding constraints on growing this opportunity faster? really curriculum? Is it sort of lack of funding or focus by corporate programs? You know, the calendar year flip you mentioned and, you know, just simply breaking inertia or what are the, you know, what are the binding constraints and, you know, what can you do to smooth some of that?

55:30 Rob, I want to make sure I understand your question. Are you talking about demand for employers for AI skills or am I

55:41 Yeah, re-skilling of employees to meet the changing environments. That's something that we survey recruiters in HR departments about. And it seems like this is an opportunity you're going after. So I just wanted to get your thoughts on maybe what are the sort of friction points to make this move faster?

56:03 Well, it's interesting. We've done an optimism survey for I think we're in our sixth year. Every year you see a disparity between perceptions of workers and perception of employers. And what we learned in the last one is that workers are frankly upskilling themselves. So a lot of employers think that they're focused on reskilling and upskilling their employees. But in this new world of AI, some of the data we see is that Employees are really taking the bull by the horns right now. And employers, to your point, they're kind of all over the place. And I'm not by any means an expert here.

56:49 You may know more from the surveys that you have. But I think employers are trying to figure out where they go. I mean, all employers are similar now. We're going through our own internal transformation, which requires a lot of upskilling. and it's all about picking priorities and really picking areas of the organization where you can see the return on helping your employees move through that upskilling process. So what we're seeing is our students are getting a lot of value from AI. We know employers need that value, but to your point, I think we need to find our spots in terms of being a better partner to employers. and that has a lot to do with who are the willing buyers within employer organizations. And we still see a lot of different needs across employers, but they're not always consistent. It just kind of depends on what the need is at any specific employer. Now, with that said, you're seeing C-suite leaders are very focused on the need to transform their entire workforce.

58:05 I'm sure if you're doing any kind of survey data with HR leaders, they're feeling a pressure like never before in terms of transforming the workforce. And a lot of that is the reskilling required by AI. I know Fuel 50, their conversations are all about workforce transformation. That's where the demand is, where the interest is. But to your point, I think companies are trying to figure this out. And not to be anecdotal, but I've seen examples where companies do invest, for example, on large reskilling initiatives, but we're so early in this process that one of the examples, I can't disclose it because it's confidential, but a large reskilling initiative across tens of thousands of employees resulted in token costs going through the roof. and it sort of stalled the entire transformation because they had to rein in their token costs. So I think those types of learnings are occurring in enterprises.

59:08 And the good news for us is I think we're closer to those conversations, but to your point, we've got to find the right pathways to make sure that we can scale our solutions for employers. Thanks for all that, Chris. You're welcome. There are no further questions at this time. I will now turn the call back to Chris Lynn for closing remarks.

59:34 Thank you, operator, and thank you, everyone, for your questions and joining us today. As we begin fiscal 2027, we believe that we have a clear set of priorities and a strong financial foundation that gives us the flexibility to continue investing in our students and advancing our strategic priorities. I want to thank our faculty and employees for everything they do to support our students and thank our students, alumni, employer partners, and shareholders for their continued support. We look forward to updating you in the next quarter. Thank you. This concludes today's call. Thank you for attending. You may now disconnect.