Phoenix Education Partners (PXED) Q3 FY26 earnings call: guidance and Q&A

What has changed regarding enrollment growth expectations, particularly concerning search changes and any structural vs. temporary impacts? What is the long-term growth rate outlook?

Management stated that demand for programs remains strong, but prospective students' evaluation processes are longer and more iterative due to AI-powered search. This is a near-term transition, but long-term, it's favorable for institutions with clear differentiators. Other factors included temporary friction from Department of Education's new fraud detection controls, which are now behind them. The long-term outlook remains consistent with previous communications, and FY27 outlook will be provided on the next call.

“what we are seeing is a change in how prospective students evaluate their options. We're seeing longer and more iterative evaluation processes as AI-powered search becomes more a part of the evaluation journey. And that's really the driver of the near-term impact.”

asked by Gregory Parrish · answered by Christopher Lynne

Can you provide color on new student starts and how they are trending, especially in relation to the reported 1% enrollment growth and retention strength?

Management does not disclose new starts but noted that a higher propensity of students who did not retain beyond earlier courses last year had masked revenue growth in Q2 and Q3. This issue is not present this year. They feel good about demand and progress in navigating AI search changes, with foundational changes showing impact.

“from a revenue growth perspective, we did have a higher propensity of students that didn't retain beyond the earlier courses last year... And the impact of that from a year-over-year revenue growth rate was anticipated to be higher in Q2 and Q3. So that masks a little bit of the actual growth from a revenue perspective.”

asked by Jasper Bibb · answered by Christopher Lynne

What drove the 16% year-over-year increase in advertising expense in the quarter, and is moderation expected in Q4?

The $6.6 million increase in advertising expense was due to adapting to changes in how prospective learners discover and evaluate higher education. The company accelerated the 'Built for Real Life' campaign to differentiate the University of Phoenix and strengthen top-of-funnel awareness, believing these investments will support long-term enrollment growth and acquisition efficiency.

“We incurred $6.6 million higher advertising expense in Q3 versus the same period prior year, and that's as we adapt to changes in how prospective learners discover, evaluate, and ultimately choose higher education.”

asked by Jasper Bibb · answered by Blair Westblom

Given the previous breakdown of enrollment by fields of study (63% business/IT, 31% healthcare, 4% education), what areas have shown strength or less strength recently?

The breakdown remains similar, but healthcare-related programming has shown stronger growth, driven by macro trends and growth in B2B relationships within healthcare organizations. The company sees growth across different parts of its portfolio, especially in growing verticals, reflecting both B2C demand and employer responsiveness to differentiators.

“we have seen stronger growth in health care. I mean the macro trends there have been strong. ... But I would say health care, the areas that you mentioned have been growing at a higher rate than other programs.”

asked by Alexander Paris · answered by Christopher Lynne

With new Department of Education rules going into effect and potential future negotiated rulemaking, particularly regarding the 90-10 rule, what are the company's thoughts on potential changes?

Management acknowledges hearing similar discussions about revisiting the 90-10 rule. They hope that any accountability metric would apply to all of higher education, as the current 90-10 rule doesn't necessarily align with student success. They are cautiously optimistic about potential changes.

“I do know that there is some acknowledgment that the ratio is worth revisiting. I think there's pretty common acknowledgment that we've heard in that any kind of accountability metric should really be applied against all of higher ed, and 90-10 is currently not handled that way.”

asked by Alexander Paris · answered by Christopher Lynne

Is the expansion of managed accounts stimulating enrollment as expected? Is B2B a growing focus, and what is its current percentage of total enrollment? What is the impact on revenue and profit contribution as the enrollment mix shifts to this channel?

B2B enrollment has grown to 36% of total enrollment in Q3, up from 33% a year ago, and is expected to continue growing. This channel is a strong driver of revenue growth. While there's a slight reduction in revenue per student due to discounts, B2B students tend to retain and complete at higher rates, resulting in similar profitability. The company expects profitability dynamics in the B2B channel to improve over time.

“We've gone to 36% of our enrollment now in this past quarter versus 33% in the previous year. And we expect that growth to continue based on the performance we've seen as we continue to invest in account management.”

asked by Robert Sanderson · answered by Christopher Lynne

How do tech platform investments aid AI initiatives, and how does this differentiate the university? Does the OpenAI collaboration offer synergies with B2B partners, and how important is AI to the long-term vision?

AI is central to the university's vision, focusing on improving learner experience, driving operational efficiency, and equipping students with AI skills. The company's tech foundation allows nimble implementation, differentiating it from competitors. The OpenAI collaboration accelerates these efforts by providing tools and fostering joint curriculum development and research. AI is seen as transformational for student outcomes and operational leverage, with examples like the 'One Team Assistant' demonstrating efficiency gains.

“We're really excited about our vision of where AI can take us across the university. We're focused on 3 key areas where we think AI will continue to be transformational in us pursuing our vision.”

asked by Robert Sanderson · answered by Christopher Lynne

What drivers give confidence in the implied Q4 revenue acceleration? And regarding the buyback, how is the company thinking about pacing and potential acceleration of the remaining $46 million authorization?

Confidence in Q4 revenue acceleration comes from continued healthy retention, strong demand, and improvements in navigating AI search changes. A year-over-year comparison benefit also exists as Q4 FY25 did not have the same high propensity of early-course student drops that impacted Q2 and Q3 FY26. For buybacks, the company has $46 million remaining and will be thoughtful about pacing, considering float and volume, while prioritizing strategic investments and M&A.

“we've seen healthy retention that's continued. We're seeing strong demand. And as we work through this shift that we're seeing with AI search, we are seeing improvements as we navigate those changes.”

asked by Jack Slevin · answered by Christopher Lynne