Good afternoon, and welcome to Phoenix Education Partners Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Beth Coronelli, Vice President of Investor Relations. Please go ahead.

Thank you. Welcome to the Phoenix Education Partners' Second Quarter Fiscal 2026 Earnings Conference Call. Speaking on today's call are Chris Lynne, our Chief Executive Officer; and Blair Westblom, our Chief Financial Officer. Before we begin, I would like to remind everyone that certain statements and projections of future results made in this presentation constitute forward-looking statements that are based on current market, competitive and regulatory expectations and are subject to risks and uncertainties that could cause actual results to vary materially. Listeners should not place undue reliance on such statements. We undertake no obligation to update publicly any forward-looking statements after this presentation. The risks related to these forward-looking statements are described in our filings with the SEC, including our most recent Form 10-K, Form 10-Q and other public filings. We will also discuss certain non-GAAP financial measures. You should consider our non-GAAP results as supplements to and not in lieu of our GAAP results. Reconciliations to the most directly comparable GAAP measures can be found in our earnings release and SEC filings. Unless otherwise noted, comments on the call will focus on comparisons to the prior year period. We also direct you to the supplemental earnings slides provided on the Phoenix Education Partners' website. I'll now turn the call over to Chris.

Thank you, Beth, and good afternoon, everyone. We appreciate you joining us. Today, we'll walk through our results for the second quarter of fiscal 2026 and the continued progress we're making on our strategy. Guided by our mission, we remain focused on advancing student success through flexible, career-relevant education for working adults. Our students balance professional and personal responsibilities as they pursue their education and our strategy remains centered on supporting their success through personalized technology-enabled programs. Fiscal 2026 also represents an important milestone for the University of Phoenix. Later this year, we will celebrate our 50th anniversary, marking 5 decades of serving working adult learners while continuously adapting to the evolving needs of the workforce. Our commitment to student satisfaction is reflected in the recent Encoura Ruffalo Noel Levitz priorities survey for online learners, a national study spanning 150 institutions and approximately 90,000 learners, which shows consistently high satisfaction among currently enrolled online students. The university administered through the Noel Levitz platform, the survey to a random sample of 20,000 actively enrolled associate, undergraduate, graduate and doctoral students representing each college and degree level with approximately 2,500 students responding. The university performed above the national averages across all 26 measured attributes, with 85% of our students reporting being very satisfied or satisfied with their online university experience compared to 73% of students in the national benchmarked institutions. These results combined with strong retention results, underscore our commitment to delivering strong student outcomes and ensuring that working adult learners develop skills that translate directly into their careers. Turning to our results. The second quarter reflects continued progress across our key priorities, enrollment growth driven by record retention, margin expansion and a strong balance sheet that gives us the flexibility to invest in students and return capital to shareholders, all underscoring…

Thank you, Chris. Net revenue for the second quarter was $222.5 million, down 0.4% compared with $223.4 million in the prior year period, reflecting the impact of discounts. Average total degreed enrollment increased 1.8% for the second quarter to approximately 82,600 students compared to 81,100 in the prior year, driven by strong retention trends. Net income attributable to Phoenix Education Partners was $10.8 million or $0.28 per diluted share compared to $16.1 million or $0.43 per diluted share in the prior year. The decrease was primarily driven by higher share-based compensation expense associated with our IPO. Adjusted EBITDA for the second quarter increased 7.8% to $34.8 million compared to $32.3 million in the prior year. Adjusted diluted earnings per share was $0.58 in the second quarter compared to $0.56 in the prior year. Adjusted EBITDA margin for the second quarter expanded to 15.7%, up from 14.5%, driven by lower bad debt expense, primarily due to higher retention, partially offset by an increase in costs attributable to being a public company. For the first 6 months of fiscal 2026, net revenue was $484.5 million, an increase of 1.3% compared to $478.1 million in the prior year. Average total degreed enrollment was up 2.9% for the first 6 months to approximately 84,100 students compared to 81,700, reflecting continued strength in retention. Net income attributable to Phoenix Education Partners was $26.2 million or $0.68 per diluted share compared to $62.5 million or $1.66 per diluted share in the prior year, with the year-over-year decrease primarily driven by share-based compensation expense associated with our IPO. For the first 6 months, adjusted EBITDA increased 7.4% to $110 million compared to $102.4 million in the prior year, and adjusted diluted earnings per share was $1.97 compared to $1.92 in the prior year. Adjusted EBITDA margin for…

[Operator Instructions] Your first question comes from the line of Jasper Bibb with Truist.

I wanted to follow up on some of the marketing themes you discussed. Can you maybe give a little bit more detail on the trends you've seen over the past couple of months on starts or application growth as the company navigated the channel shift you discussed from Gen AI to search or search AI, I'm sorry.

Yes. Jasper, this is Chris. Good to hear from you. Yes. So we've been navigating changes to online search for quite some time now. And coming into the quarter, we did experience another algorithm shift in AI search on Google, which had an impact to how prospective students were navigating their search process. We responded to it quickly and working with Google to understand, and this is something we're very good at. We've done for years to understand these algorithm shifts. And an example of some of our responses to that. We are learning that the AI overviews on Google now are more reliant as a primary source on YouTube. And for many years now, we've been #1 in our sector in social media. We've developed a lot of outcomes-based content that is out there that's really generated strength for us. And so one of the things we did is we migrated a lot of that content over to YouTube. And so we made changes like that, that have -- we talked about in our opening remarks that we've seen improvements in some of these recent trends coming into Q3 back in line with the trends that we were expecting for this year. To answer questions directly about applications, really, this happened going into our January enrollment period. So there was some impact on the January enrollment. And the way I would characterize it is we're seeing healthy demand at the top of the funnel. We're seeing changes in how that demand is coming to the university through multiple channels. And we've been reacting to those changes to make sure that we meet the demand where it comes to us effectively. And we feel like we've responded well in line with how we've been managing these types of changes over time for the last several years and are happy with the trends that we're seeing going into Q3.

That all makes sense. And I'm not sure how much you can address this, but I think the education department changed the rules around private equity ownership in this space. The company's majority shareholder is obviously a private equity firm. Does that change anything on how they think about their investment or time line there that they've conveyed to you?

The short answer is no. And I think the changes you're referring to are related to the program participation agreements. And we just entered into a 6-year agreement last year. And based on any of the guidance received, we don't anticipate any impact.

Your next question comes from the line of Alex Paris with Barrington Research.

Congrats on the outperformance in the quarter. Just to clarify your answer on the previous question. Chris, you said coming into the second quarter, these changes were made at online search, and it had an impact on Q2 enrollment?

Yes. It was ahead of the January enrollment season later in January, we saw some impact, which ended up being, we believe, a result of an algorithm shift in Google's AI overviews. When we were seeing that, that was in the late or early winter, so November, December time frame. Early on, it looked like some seasonality that we were trying to understand, we later recognized that the algorithms did shift and so the way we responded to that was multifold. We had a lot of responses, really just continuing to do a lot of the same things that we've been doing for years. I think one of the more material changes we made was learning that Google had shifted to YouTube as being a primary source for the AI overviews. And despite the fact that we were very strong in content across social media, we weren't where we can be with YouTube. So we made some large shifts in the January and February time frame to address that. And when I mentioned that we're seeing trends return back to trends we expected for the year, that began to occur back in early March.

Okay. Got you. I just wanted to clarify that. So you saw the initial impact early in the second quarter, you made some changes and then early here in the third quarter, month of March, you're seeing some improvement?

Yes. I would say the impact was noticeable really in the later part of the second quarter, but the algorithm shift happened in the early part of the second quarter.

Okay. Got you. So the shift early in the quarter, the impact late in the second quarter and then here early in the third quarter, you're seeing some improvement in response to some of the changes that you've made, you think?

Yes. I mean we've seen continuing through all of this, we've seen strong demand for our brand, which is the very top of the funnel. One of the most effective ways of looking at that is just the inquiry searches for our brand on Google. And then the next measurement we look at is how that demand comes to us on our website, and it comes from various channels. And we've seen strength in how that inbound demand is coming to us. That's returned back to what I would call normal relative to our recent history here in the early part of Q3.

Got you. And then so the second question is for Blair in your comment regarding revenues and the guidance for the balance of the year, you said that revenue should trend to the lower end of the full year range because of some of these marketing issues?

Yes, that's right, Alex. As discussed, we would expect revenue to come in, in the lower part of the range just given the marketing dynamics that we've observed. Chris, is there anything you'd like to add to that?

Yes. I mean the way we looked at it is we took the best information available. We didn't feel based on that, that we should change the range, but we did want to guide to the lower end given these dynamics we saw in Q2.

And again, it sounds like conservatism, given you said that things have kind of returned to normal here in, I don't know, month of March or early April?

I would call it, Alex, prudent. I mean we -- I think you'll learn the style of this management team over time. We try to be prudent. I would also say that there's always a cycle time. So when you see demand, it works its way through the funnel. And so I think it's prudent because we're seeing what we need to see, but we also know that there's seasonality in terms of when students actually begin their classes. And so we took that all into consideration with our guidance.

Okay. That's great. And then just to button it up. Adjusted EBITDA, on the other hand, is trending towards the upper end of the full year range, and that's due to cost management as well as lower bad debt related to the better retention. Do I have that right?

Yes, absolutely. And it's also a reflection of the good work that our teams are doing, leveraging our technology and AI solutions. That's been a big part of our story for years. And we're seeing nice traction in getting efficiency. You heard it in our opening remarks that our story has been -- we've been effective at gaining improvement in student outcomes while reducing the cost to deliver those outcomes. And we continue to see the ability to do that, not only improve retention, but improve the efficiencies in generating these results. And we believe that we're going to maintain those types of efficiencies through the remainder of the year.

Your next question comes from the line of George Tong with Goldman Sachs.

Can you provide an update on your fraud prevention initiatives and your estimate of how much of an impact that is currently having on enrollment performance?

George, yes, thanks for the question. Very similar to last quarter. We feel really good about the infrastructure that we put in place last year. If you recall, we did see a lot of friction as we were putting the infrastructure in place. And then in Q4 of last year, we made a choice to include some of the analytical detection and verification processes at the top of the funnel. And we saw a lot of friction in Q4. That improved significantly coming into Q1. It's improved even further into Q2. What I would say today is we have a very strong, agile system of detection based on strong analytics and prevention with verification, fraud detection with our bank accounts that's working very well. We think that this is doing a couple of things. While there is a lot of UEA activity in the marketplace, we are seeing evidence that as it relates to us, while we still see a lot of volume try to get into our funnel, it's dissipated quite a bit. So we do think that our systems of controls have deterred the volume from trying to penetrate our university as often. And we've gotten better and better at that balance of reducing friction significantly for well-intended students so that they can have a normal process of working their way through the enrollment process. So we feel really good about where we're at. We have it under control through Q2. It's a day-to-day thing, but our systems are great. And I would say there is a little bit of friction that will exist as long as this activity exists in the marketplace, but it's not something that we consider material to date.

Got it. That's helpful. And then your retention rate expanded quite a bit, 500 bps year-over-year in the quarter. Can you elaborate on the initiatives that drove this level of improvement and if this rate of improvement is sustainable or more onetime in nature?

Yes. Thanks for that question. I'll say there's a -- we're in the probably eighth year, if I'm doing my math, our ninth year of a transformation that we've been talking a lot about. We've seen many, many years of consistent meaningful improvement in our retention rates, which ultimately will lead to stronger and stronger graduation rates. And it's a myriad of things. I mean we've built a technology digital-first platform inside and outside the classroom that leverages our data in really powerful ways to predictively meet our students when and where they need us with solutions. And we have hundreds of solutions that we're constantly focused on that are removing friction or finding ways to get more effective outcomes to our students. Some of the bigger needle movers we talked about were mobile-ready courses in those early courses where students are acclimating into the institution. That's had a meaningful uptick because as they have success in those early courses, they get more confident and then they end up persisting. If they can get first -- through the first 2 or 3 courses, they persist at much higher rates and graduate much higher rates. Dispersed by course we've talked about in the past has also been a really meaningful needle mover. But there's numerous other things, and that's part of our story. Like we're really excited about this moment where -- at which AI technologies are we're in a position to leverage these technologies in ways to continue to do what we've been doing, which is improve these retention outcomes for our students and satisfaction outcomes while reducing the cost to deliver them. And we're seeing an acceleration of AI initiatives across the Board from our AI-assisted student onboarding to human-in-the-loop solutions that are taking cycle times and supporting our…

Your next question comes from the line of Griffin Boss with B. Riley Securities.

I just want to jump right back into that discussion on retention, more so directed at the expansion of your employer-affiliated students or the B2B segment, if you will. So we've talked about this plenty in the past. I'm just curious, I mean, you've expanded that from what was it 31% a year ago, now it's a 35% of total enrollment. Where -- can you just remind us where you think that, that level can go or maybe what you aspire to do? Obviously, this is a big strategy for Phoenix in terms of retention. But you've talked about in quarters past how this -- you could see kind of overall revenue growth trailing enrollment growth given some of the Myriad things that you've discussed today on top of B2B. But is that going to continue into -- past the third quarter at this point? Just kind of where you're at on the B2B initiatives at this point?

Yes. Thanks, Griffin. I really want to address 2 parts of your question. One, where we're going with our B2B growth; and two, the relationship between revenue and enrollment because I want to be really, really clear on how I think you should be considering that. In terms of B2B growth, I mean, this is a big part obviously, we've discussed for a while of our long-term strategy. We think we're well positioned to meet the reskilling needs of employers and their employees who are working adult students. And we're positioned well to continue healthy growth in that segment. We increased the size of our account management teams this year by about 25%. We're seeing the benefit of that, both in expanding growth within existing relationships as well as growing new employer relationships as well. And we believe we can continue healthy growth in that area. We're not in a position to give you a long-term view on that, but we have a -- well over a majority of our students are working adults. We have over 2,500 employer alliances that cover a large percentage of the market share of employed work in adults. So we do think that there is strong upside in growing that channel. In terms of the revenue and enrollment relationship, we do have a discounted rate on average for B2B. And I think we mentioned that in our opening remarks. That's been very much in line with our expectations. And just as a reminder, our B2B students retain at higher rates. It's a very durable revenue stream. And over time, they have very similar profitability characteristics as our B2C students. And the bigger the channel gets, the more effective it is at reducing the acquisition cost of growing that channel. So we feel really good about that being in line with expectations. But the other relationship between revenue and enrollment to keep in mind that I talked about in previous quarters is last year, we had a higher volume of students enter our risk-free period. This is not anything to do with B2B, but we had a larger percentage, and we offer a risk-free period to students that have certain risk characteristics that don't correspond to higher retention rates. So we offer them the opportunity to try our courses out before they enroll. That did result in more of those students deciding to enroll, but not persisting beyond their initial courses. So I mentioned this early in the year for a reason because we anticipated in this quarter and in Q3 that would affect we have atypical relationship between our average enrollment and revenue as a result of that experience last year. We're not having that experience this year. We have students that -- in terms of student mix that we expect to persist much longer, but it is affecting that trajectory in Q2 and Q3, and we expect that to reverse back to more normal trends in Q4.

Your next question comes from the line of Jeff Silber with BMO Capital Markets.

This is Ryan on for Jeff. I had a question. I know business and IT are big program concentrations for you. I was wondering if you're seeing any shifting degree preferences from students as some of the newer students might be fearful about the potential Gen AI impact. I know we saw some of that in the fall clearinghouse data. So curious as it relates to your business.

Yes. Thanks, Ryan. Yes, we're looking at that very closely. I think what I'd like to point out that we feel really good about is we made multiyear investments in aligning all of our curriculum to career relevant skills. And that's across all of our programs. We're very comfortable with the breadth of our program offerings, including our business and IT programs. And what that means is that in every course a student takes, they can earn verified skills that map to the career relevant skills that employers need today. We've embedded AI fluency into the skills aligned curriculum over the last 2.5 years. And so we feel very good about the differentiation of our programs from a skills alignment and the relevancy to the workforce needs today. And we're seeing that -- we believe that's evident in the growth that we're seeing directly in the B2B relationships because these -- we're growing existing relationships where we still compete against other universities and colleges, and we're able to expand our growth, and we believe that differentiation is a very helpful driver to that growth. And we're seeing growth in all of our programs. One of the strong trends I also read about is in health care and nursing. That has been a nice tailwind for our health care programs and nursing programs. Health care employers are the largest segment we have across our B2B portfolio, just under 30%. But we're seeing growth of all of our programs within that segment. And many of our programs are business and IT because there is demand from those employers and those employees. So we feel comfortable with where we're at as it relates to the University of Phoenix's programs.

And I appreciate the color on the B2B enrollments and the strength of those relationships. I'm just wondering how you're thinking about the non-B2B degreed enrollments? And are you investing there? And how has that kind of been trending?

Yes. So we have variability between B2C and B2B throughout the year. We're comfortable with the demand we're seeing across both programs, both channels. We think that if we're meeting the needs for employers and workers, we're meeting the needs for those that don't have benefits under employers and are working mid-career working adults. So we feel like that differentiation is helpful across B2C and B2B, and we feel like we see plenty of evidence of that in our demand framework.

Your next question comes from the line of Stephanie Moore with Jefferies.

I wanted to appreciate all the feedback this afternoon. Maybe you could talk a little bit about the competitive landscape right now. You talked a lot about the investments that you've made, specifically kind of targeting from a marketing standpoint. But maybe just give us an update on just how you would characterize the pulse of the overall competitive landscape. And then as you think about your strategy over the course of the next 1 to 2 years, what we could expect to see as you continue to look to differentiate yourself?

Yes. Thanks for the question. We have a very large addressable market, both students with some or no college, some college degree or some college credits that want to complete their degree and those that have no college credits and want to complete their degree. And for a lot of those students, we may not be competing with anyone except for motivating them to pursue getting skills that could advance their careers. So we tend to focus on what are the needs of those potential students that we can support. Students have a need for skills today. They want career-relevant skills that not just wait for a degree, but that they're getting skills along the way that have value in the workforce. We believe that we're delivering on that in a very differentiated way. Each course, they're getting skills in weeks, not years. That's one of our primary campaigns. And we don't have many competitors that can say the same thing based on the substance of what they deliver. And so we think that, that positions us very well to meet the needs. There's also other things that we do very well at saving time and money. We're very effective at helping students with previous college credits, leverage those college credits to save time and money. So we make sure that we differentiate the experience that those students have and getting credit on the front end. The more effective we are there, the better we compete with other institutions like ourselves. There's a lot of flexibility, our empathetic support process is something that busy working adults who are a little bit cautious about pursuing college again. They see that as a very strong value proposition. So the more effective we are at telling people what we do really well and helping them understand how we do it better than our competitors tends to help us be effective in the marketplace. And we just continue to lean into those distinctions effectively in our marketing efforts.

Got it. And just as a follow-up, I mean, I think we're all a society thinking about the way we use education is differently now with AI. So I guess maybe just to wrap it up, I mean, do you feel like there's a strategy in which you can kind of advertise your approach not only to everything you just outlined, but that in Gen AI world, maybe how you pursue education could be different? I guess I'm just a high-level question if that is. Yes.

I'm thrilled you asked it. Look, we think the evolution of AI is extremely powerful to our business model and how we serve our students. We talk a lot about that. But to answer your question, when you look at the workforce trends, what's existing today and where the world is going, and we talked about this in my opening remarks about this great reskilling as they call it, we're living that. I mean this is a rare moment where we're looking at our own institution and working on reskilling our entire employee base to help them leverage tools that magnify their ability to pursue the goals that we have. There's a lot of organizations like us that have a big vision. And the use of AI is powerful at a person level, at a workflow level and at a corporate level in helping institutions get to the visions that they have. So the entire workforce is going to need these skills in order to drive the goals of tomorrow. And we know that the workers that are fluent and are capable in using AI are going to have the jobs of tomorrow. We're extremely well positioned. We think this is a tailwind for the university. We adopted AI into our curriculum almost 2.5 years ago. We were a first mover here. Now all institutions are trying to figure out how to do this. Our students are gaining fluency in AI. We're getting deeper and deeper into looking at what our employer partners and industry councils are looking for in the workplace and building those technical skill needs into our program. So we think we're well positioned to help our students gain skills for tomorrow. We also think our differentiation is we understand the adult learners. So when you look at the learner today, more and more learners are becoming what we have served for almost 5 decades, an adult learner that is constantly looking to upskill that values the pursuit of a degree, but they're working, they have responsibilities along the way. AI has changed the game so much. The speed and movement of skills in the workforce is going to cause more and more learners to look like our learners, and we're well positioned to deliver value. And we know they want value along the way as well as through the degree, and we have a curriculum that offers them skills along the way as well as the degree. So we think we're very well positioned within the trends that we're seeing in the workforce today as it relates to the AI.

That concludes our question-and-answer session. I will now turn the call back over to Chris Lynne for closing remarks.

Thank you. Our results this quarter reflect continued progress in executing our strategy. We remain confident in the strength of our mission, the resilience of our model and our ability to continue to deliver strong student outcomes. I want to thank our faculty and team members for their continued dedication to our mission and commitment to student success. Thank you for joining us today.