Phoenix Education Partners' Q1 2026 Earnings Call: Contradictions Emerge on Fraud Controls, Cybersecurity Costs, and Fraud Impact

Date of Call: Jan 13, 2026

Financials Results

• Revenue: $262 million, up 2.9% year-over-year
• EPS: $0.40 diluted earnings per share, compared to $1.23 a year ago
• Operating Margin: Adjusted EBITDA margin of 28.7%, up from 27.5% in the prior period

Guidance:

• Reiterating net revenue guidance of $1.025 billion to $1.035 billion for fiscal 2026.
• Reiterating adjusted EBITDA guidance of $244 million to $249 million for fiscal 2026.

Business Commentary:

Revenue and Enrollment Growth:

• Phoenix Education Partners reported revenue of $262 million for Q1 fiscal 2026, up 2.9% year-over-year.
• Average total degreed enrollment increased by 4.1% to 85,600 students.
• The growth was driven by increased employer-affiliated enrollment, which now accounts for 34% of total enrollment, up from 31% in the previous year.

Adjusted EBITDA Improvement:

• The company's adjusted EBITDA rose by 7.2% to $75.2 million.
• This improvement was due to continued revenue growth, enhanced productivity, operational efficiency, and lower financial aid processing costs.

AI Integration and Cybersecurity Incident:

• Phoenix Education Partners is integrating AI into its programs and operations, focusing on preparing students for AI fluency and leveraging AI for operational excellence.
• The company experienced a cybersecurity incident, resulting in $4.5 million in expenses, but the software vulnerability has been remediated, and no material impact on operations was reported.

Regulatory Developments:

• The company is positively impacted by the consensus reached in the negotiated rulemaking process regarding accountability measures.
• Preliminary program performance metrics indicate that all University of Phoenix programs for which metrics were provided are passing, providing further regulatory clarity.

Dividend Declaration and Financial Strategy:

• The company declared its inaugural regular quarterly cash dividend of approximately $0.21 per share, reflecting confidence in its cash generation and financial strength.
• This decision aligns with the company's strategy of disciplined capital allocation and long-term value creation.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated 'We delivered a solid start to the year with financial performance consistent with our expectations and results that reinforce the full year outlook.' CFO added 'Our first quarter performance represents a strong start to the year and reinforces our confidence in our full year outlook.'

Q&A:

• Question from Gregory Parrish (Morgan Stanley, Research Division): Could you talk more about the Department of Education updates and the potential impact of fraud crackdowns?
  Response: Management sees regulatory developments as positive and consistent with expectations, with preliminary program performance metrics showing all applicable University of Phoenix programs passed. They do not anticipate material adverse impact.

• Question from Alexander Paris (Barrington Research Associates, Inc., Research Division): How comprehensive was the preliminary Department of Education data, and are there any programs at risk?
  Response: Preliminary data covered greater than 50% of programs, with those not reported likely being smaller. Historically, programs in behavioral sciences may have lower earnings, but preliminary info is positive.

• Question from Jasper Bibb (Truist Securities, Inc., Research Division): Has the second-half weighted enrollment growth message changed given the strong Q1?
  Response: The outlook is unchanged; revenue growth will lag enrollment growth in Q2 and Q3 due to higher-quality incoming cohorts, with normalization expected in Q4.

• Question from Griffin Boss (B. Riley Securities, Inc., Research Division): Where is new student growth primarily coming from, and will there be higher ongoing OpEx from the cybersecurity event?
  Response: Growth is broad-based across programs aligned with market demand. No material incremental recurring OpEx is expected from the cybersecurity incident; costs are covered by insurance.

• Question from Keen Fai Tong (Goldman Sachs Group, Inc., Research Division): How did programs perform under the debt-to-earnings test, and can you quantify the impact of fraud controls?
  Response: Average debt and earnings trends were favorable historically, with little risk from potential regulations. The impact of fraud controls is not quantified but is reflected in the outlook, with controls being effective.

• Question from Jeffrey Silber (BMO Capital Markets Equity Research): What is the exposure to loan caps starting next July, and why not change guidance after a strong Q1?
  Response: No material impact is expected from loan caps or related changes. Guidance is reiterated as the year is early, and Q1 performance sets a strong foundation.

• Question from Stephanie Benjamin Moore (Jefferies LLC, Research Division): How is employer engagement progressing, and does B2B strength change seasonality?
  Response: Employer engagement is strong, with growth from deeper penetration and new employer additions. Seasonal patterns remain consistent across B2B and B2C.

• Question from Robert Sanderson (Loop Capital Markets LLC, Research Division): Under what conditions might you change pricing, and what are your thoughts on AI-driven job displacement?
  Response: Pricing could be a lever if affordability dynamics change, but focus is on driving operating leverage. AI is seen as causing workforce displacement, requiring reskilling, and is a major focus in curriculum and with employers.

Contradiction Point 1

Impact of Fraud Controls on Enrollment and Revenue Productivity

It involves changes in the description of when the negative impact of fraud controls on productivity ended, which affects expectations about future productivity trends and enrollment performance.

Given recent year-over-year new student enrollment growth, when will comparisons become easier for new student enrollment—Q3 or Q4 of this year? - Alexander Paris (Barrington Research)

2026Q1: Productivity impacts from fraud controls in the enrollment funnel were seen through Q3 fiscal '25 but improved in Q4 and carried into Q1. This trend is expected to continue in Q2 and Q3. - Christopher Lynne(CEO)

How much of the slower enrollment growth in FY '26 is due to reduced suspicious activity versus friction from legitimate enrollments, and what gives you confidence this won't spike again? - Keen Fai Tong (Goldman Sachs)

2025Q4: Moving these controls to the application stage in Q4 led to significant productivity improvements. The root cause... is acknowledged by the Department, and their new FAFSA should reduce the issue across the sector. The current control structure is effective and has been consistently so since implementation. - Christopher Lynne(CEO)

Contradiction Point 2

Quantification of Impact from the Cybersecurity Incident

It involves changes in the willingness to quantify the financial impact of a cybersecurity event, moving from attributing a cost to stating no material future costs.

Will there be a marginal increase in cybersecurity or legal fees going forward due to the cybersecurity event last fall and the $4.5 million payment in the quarter? - Griffin Boss (B. Riley Securities)

2026Q1: Additional expenses related to the cybersecurity incident are expected but will not be material. ...No incremental recurring operating expenses for cybersecurity are anticipated as a result of this incident. - Christopher Lynne(CEO)

What portion of FY26's slower enrollment growth is due to reduced suspicious activity versus friction from legitimate enrollments, and what gives confidence this won't spike again? - Keen Fai Tong (Goldman Sachs)

2025Q4: The cost was primarily in the form of lower enrollment productivity and marketing inefficiency in FY '25 when fraud checks were later in the funnel. - Christopher Lynne(CEO)

Contradiction Point 3

Nature of the "Cost" from Fraudulent Activity

It involves a shift in characterizing the primary cost from fraud from a financial expense to a productivity/operational drag, which changes the narrative on past impacts and current control effectiveness.

Has there been a decrease in fraudulent attempts, or are criminals still active in the industry? - Alexander Paris (Barrington Research)

2026Q1: Fraudulent activity still exists in the marketplace, but volumes have trended significantly downward since Q4 when controls were moved to the application process. - Christopher Lynne(CEO)

What portion of the slower FY '26 enrollment growth is due to reduced suspicious activity versus friction in legitimate enrollments? What gives you confidence this won't spike again? - Keen Fai Tong (Goldman Sachs)

2025Q4: The cost was primarily in the form of lower enrollment productivity and marketing inefficiency in FY '25 when fraud checks were later in the funnel. - Christopher Lynne(CEO)