Phoenix Education’s Q1 2026 Call: Enrollment Controls’ Productivity Impact and Q4 Growth Timing Clash

Date of Call: Jan 13, 2026

Financials Results

• Revenue: $262M, up 2.9% YOY
• EPS: $0.40 per diluted share, compared to $1.23 in the prior year, with adjusted diluted EPS of $1.38, up $0.03 YOY
• Operating Margin: Adjusted EBITDA margin of 28.7%, up from 27.5% in the prior period

Guidance:

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

Business Commentary:

Enrollment and Revenue Growth:

• Phoenix Education Partners reported revenue growth of 2.9% year-over-year, with a 4.1% increase in average total degreed enrollment to 85,600 students.
• The growth was driven by strong retention and employer-affiliated enrollment, which now accounts for 34% of total enrollment, up from 31% in the prior year.

AI and Operational Efficiency:

• Adjusted EBITDA increased by 7.2%, reflecting enhanced productivity and operational efficiency through AI integration.
• AI was utilized to improve enrollment conversion, retention, and student service, with a focus on preparing students for AI fluency and leveraging AI for operational excellence.

Regulatory Environment and Compliance:

• The company noted that the Department of Education's preliminary program performance accountability metrics indicate that all University of Phoenix programs passed.
• This was attributed to consistent regulatory expectations and the company's proactive approach to compliance, including preparing for the One Big Beautiful Bill Act.

Cybersecurity Incident:

• The company incurred $4.5 million in expenses related to a cybersecurity incident involving Oracle E-Business Suite software.
• The incident was addressed promptly, with no impact on student academic programming, and the company maintains comprehensive cybersecurity insurance.

Financial Strength and Dividend Declaration:

• Phoenix Education Partners ended the quarter with substantial cash and marketable securities, totaling $218.1 million.
• Reflecting confidence in cash generation, the company declared its inaugural regular quarterly cash dividend of approximately $0.21 per share.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated: 'This quarter's results demonstrated disciplined execution of our strategy, marked by steady growth, strong retention and continued investment in student success and long-term value creation.' CFO noted: '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): Could you talk more about the Department of Education's regulatory changes, particularly the gainful employment changes, and provide a level set on where we are and any potential impacts for this year?
  Response: Management sees regulatory developments as positive and consistent with expectations; preliminary program performance metrics show all applicable University of Phoenix programs passed the earnings threshold, with no material adverse impact anticipated.

• Question from Alexander Paris (Barrington Research): How comprehensive was the preliminary data provided by the Department of Education on program performance metrics, and are there any programs that might have challenges under the new rules?
  Response: Preliminary data covered a majority (>50%) of the company's programs, with earnings information available for a material portion; programs in behavioral sciences may face structural challenges but preliminary data was positive, and no material adverse impact is expected.

• Question from Alexander Paris (Barrington Research): Has there been any let-up in fraudulent enrollment attempts since implementing new controls?
  Response: Criminal activity remains in the marketplace, but the volume of fraudulent attempts has significantly deterred since controls were moved to the top of the funnel in Q4, with the company effectively stopping most from entering the enrollment funnel.

• Question from Alexander Paris (Barrington Research): When do the comps get easier for new student enrollment?
  Response: Productivity enhancements from new controls have carried into Q1 and are expected to continue in Q2 and Q3; comps related to those enhancements will be tougher in Q4.

• Question from Jasper Bibb (Truist Securities): Has the expectation for enrollment growth in 2026 changed given the strong start?
  Response: The outlook remains unchanged; revenue growth will be lower than enrollment growth in Q2 and Q3 due to higher-quality incoming cohorts, but will normalize in Q4.

• Question from Griffin Boss (B. Riley Securities): Where is new student growth primarily coming from?
  Response: Growth is broad-based across programs, supported by over 90% of program offerings being aligned to in-demand fields, with strong B2B growth reflecting employer hiring needs.

• Question from Griffin Boss (B. Riley Securities): Will there be higher operating expenses due to the cybersecurity incident?
  Response: Additional expenses related to the incident are not expected to be material; a comprehensive cybersecurity insurance policy covers the majority of costs, and no incremental recurring operating expenses are anticipated.

• Question from Griffin Boss (B. Riley Securities): How will stock-based compensation look going forward?
  Response: The high Q1 expense was due to modifying pre-IPO stock options and is not indicative of the long-term run rate; expenses will normalize after the IPO anniversary, with future awards expected to be lower on a per-participant basis.

• Question from Keen Fai Tong (Goldman Sachs): How did programs perform with the debt-to-earnings test of gainful employment?
  Response: Internal analysis suggests very little risk; average borrowing and earnings trends are positive, and final regulations are understood to only affect Title IV accountability through an earnings threshold, not eligibility.

• Question from Jeffrey Silber (BMO Capital Markets): What is the exposure to loan caps starting next July?
  Response: No material impact is expected from loan caps or other changes in the One Big Beautiful Bill Act.

• Question from Stephanie Benjamin Moore (Jefferies): How is employer engagement and B2B growth progressing?
  Response: Growth is consistent, driven by deeper penetration with existing employer affiliates and some success in adding new employers through account management and newer product offerings.

• Question from Robert Sanderson (Loop Capital): Under what conditions might you consider using price as a growth lever given sustained pricing?
  Response: Pricing is a potential lever if market dynamics change, but the focus is on driving operating leverage through technology and AI to offset costs and maintain affordability for students.

Contradiction Point 1

Impact of Enrollment Controls on Quarterly Productivity and Growth

Contradiction on whether controls improved productivity in Q4 2025 or if the strong Q1 2026 is an early indicator.

For new student enrollment, when do comparisons become easier? - Alexander Paris (Barrington Research)

2026Q1: Productivity improvements from enrollment controls, seen in Q4 and continuing into Q1, will support growth in Q2 and Q3. - Christopher Lynne(CEO)

What factors are driving the FY 2026 2-3% revenue guidance, and what could influence it higher or lower? - Gregory Parrish (Morgan Stanley)

2025Q4: Controls for unusual enrollment activity... improved enrollment productivity and are now effective. - Christopher Lynne(CEO)

Contradiction Point 2

Quarterly Revenue Growth Cadence and the Role of Unusual Enrollment Activity

Conflicting signals on the timing and impact of enrollment control-related productivity headwinds.

When will comparable periods for new student enrollment ease? - Alexander Paris (Barrington Research)

2026Q1: Productivity improvements from enrollment controls, seen in Q4 and continuing into Q1, will support growth in Q2 and Q3. A tougher comparison is expected in Q4 as the trend historically reversed around that time. - Christopher Lynne(CEO)

What are the assumptions for enrollment growth and revenue per student supporting the FY 2026 revenue outlook, and what is the expected quarterly cadence? - Jasper Bibb (Truist Securities)

2025Q4: Headwinds from unusual enrollment activity and lower productivity were concentrated in Q2 and Q3 of FY 2025; these are expected to reverse in Q4, returning to healthy underlying trends. - Christopher Lynne(CEO)

Contradiction Point 3

Financial Forecast Certainty and Underlying Trends

Contradiction on the confidence level in the FY 2026 revenue guidance and the health of underlying enrollment trends.

For new student enrollment, when do comparable periods become less challenging? - Alexander Paris (Barrington Research)

2026Q1: Productivity improvements from enrollment controls... will support growth in Q2 and Q3. - Christopher Lynne(CEO)

What are the assumptions regarding enrollment growth and revenue per student for the FY 2026 revenue outlook, and what is the expected quarterly revenue cadence? - Jasper Bibb (Truist Securities)

2025Q4: Headwinds from unusual enrollment activity... are expected to reverse in Q4, returning to healthy underlying trends. - Christopher Lynne(CEO)

Contradiction Point 4

Quarterly Comparison Difficulty and Revenue Trend Outlook

Contradiction on when the difficulty of year-over-year comparisons will increase and the overall direction of the revenue trend.

When do comparable periods for new student enrollment ease? - Alexander Paris (Barrington Research)

2026Q1: A tougher comparison is expected in Q4 as the trend historically reversed around that time. - Christopher Lynne(CEO)

What are the assumptions for enrollment growth and revenue per student underpinning the FY 2026 revenue outlook and expected quarterly cadence? - Jasper Bibb (Truist Securities)

2025Q4: Headwinds... are expected to reverse in Q4, returning to healthy underlying trends. - Christopher Lynne(CEO)

Contradiction Point 5

Primary Driver of Productivity and Growth

Contradiction on whether the strong Q1 2026 is driven by ongoing productivity improvements or a different, unmentioned factor.

When will new student enrollment comparisons ease? - Alexander Paris (Barrington Research)

2026Q1: Productivity improvements from enrollment controls, seen in Q4 and continuing into Q1, will support growth in Q2 and Q3. - Christopher Lynne(CEO)

What factors are driving the FY 2026 2%-3% revenue guidance, and what could cause it to increase or decrease? - Gregory Parrish (Morgan Stanley)

2025Q4: Controls for unusual enrollment activity... improved enrollment productivity and are now effective. - Christopher Lynne(CEO)