Ladies and gentlemen, good afternoon, and welcome to Phoenix Education Partners' third quarter Fiscal 2026 Earnings Conference call. At this time, all participants are in a listen-only mode. Following prepared remarks, we will open the call for questions. I would now like to turn the call over to Beth Cornelli, Vice President of Investor Relations. Please go ahead.

Welcome to the Phoenix Education Partners' third quarter Fiscal 2026 Earnings Conference call. Speaking on today's call are Chris Lynn, our Chief Executive Officer, and Boyer Westblum, 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. Reconciliation to the most directly comparable gap measures can be found in our earnings release and SEC filings. Unless otherwise noted, comments in 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 as we discuss our third quarter fiscal 2026 results and the continued execution of our long-term strategy. Guided by our mission, we remain focused on helping students achieve meaningful educational and career outcomes through flexible and affordable programs designed for working adults. The pace of change continues to accelerate as artificial intelligence reshapes how people work and the skills employers need. This environment aligns directly with our long-standing focus on working adult learners. For nearly five decades, University of Phoenix has helped students adapt, grow, and succeed through periods of economic and technological transformation. Today, we are building on that legacy by continuing to enhance the learning experience, incorporating employer-informed curriculum, and preparing learners with in-demand skills, creating greater opportunities for career mobility. As we celebrate our 50th anniversary this year, we are reminded that our ability to evolve alongside the needs of learners and employers has been one of our defining strengths. That same commitment to innovation and adaptability continues to guide our strategy today. Turning to our results, the third quarter reflected continued progress across our strategic priorities. Revenue and enrollment were generally consistent with prior year, supported by continued strength and retention, and healthy growth in employer-supported enrollment. Retention remains one of the strongest indicators of value students place on the University of Phoenix experience. The sustained improvement we've achieved reflects multi-year investments across the learner journey, including technology-enabled support, personalized engagement, flexible learning pathways, and skills-aligned curriculum. Together, these efforts continue to support student retention and the long-term durability of our enrollment base. During the quarter, we accelerated the successful launch of our Built for Real Life campaign, an evidence-based omni-channel campaign that highlights our differentiation through the attributes working adults value most, exceptional flexibility, affordable tuition, and practical career-relevant education, all supported by consistently high levels of student and alumni satisfaction. At University of Phoenix, our AI strategy is centered on three priorities, elevating the learner experience, equipping students with the AI skills employers increasingly value, and enhancing how we operate across the university. During the quarter, we made exciting progress expanding AI-enabled learning and AI skill development for students, which I'll discuss in more detail later in my remarks. We also continue to scale AI to drive operational efficiency across the university, including the launch of our one-team assistant, which provides AI-generated summaries, including status and next-best actions to help our advisors best support our students. Our students continue to benefit from skills-aligned curriculum. To date, students have earned more than 1.1 million digital skills badges, providing another way to demonstrate verified workforce-relevant skills to current and prospective employers. We continue to see growing demand for learners and employers for education aligned with evolving workforce and technology needs. Approximately 36% of our third quarter enrollment came through employer-supported relationships, up from approximately 33% a year ago, reflecting the growing alignment between our educational offerings and employer needs. This alignment is reflected in feedback from employers. I am happy to report that results from a recent employer research survey conducted by the Harris Poll indicated that 98% of employers' surveys reported overall satisfaction with University of Phoenix graduates. During the quarter, we further expanded our work with employers to support upskilling, career mobility, and talent development. University of Phoenix was recently recognized by Wabash, a New York Stock Exchange-listed provider of end-to-end supply chain solutions. as a 2025 Flattinant supplier for its collaboration in supporting workforce development and operational priorities. We believe this recognition reflects the value of helping employers align learning, skills development, and business needs while helping organizations build the workforce capabilities they need to succeed. Looking ahead, we will continue expanding our academic portfolio to meet evolving workforce needs. with new offerings planned across several high-demand disciplines and more flexible pathways designed to make degree completion faster and more affordable. This includes the approval and planned fall launch of one of our first three-year bachelor's degree paths in the College of Social and Behavioral Sciences and Criminal Justice Administration. In today's workforce, preparing learners for an AI-enabled workplace is essential to helping them develop practical, career-relevant skills they can apply throughout their careers. Recent findings from the University of Phoenix Career Institute Career Optimism Index underscore the importance of continuous learning and AI skill development. The study found that about half of workers say AI increases their confidence in pursuing new career opportunities, while more than half report greater confidence in developing new skills and adapting to evolving workplace technologies. Our goal isn't simply to teach students how to use AI tools. It's to prepare working adults to succeed as AI continues to transform the workplace. We are integrating generative AI throughout our curriculum to help students develop practical AI skills they can apply on the job. We're continuously expanding AI-powered learning experiences and now offer AI skill-building modules in every course. We are currently enhancing teaching and learning through support tools and advanced AI training for faculty, expansion of our Socratic Dialogue tool that simulates real-world professional scenarios, and have an AI agent that provides 24-7 support for writing and math. Earlier today, we announced a collaboration with OpenAI, an exciting opportunity to accelerate this work. Working with OpenAI, we plan to advance AI-powered learning, explore collaborative research, and expand access to AI technologies that help working adult learners develop the skills they need for an increasingly AI-enabled workplace. As part of this relationship, we plan to provide eligible students with access to ChatGPT, giving them a hands-on experience with AI as they continue developing those skills throughout their education. As search and discovery continue to rapidly evolve, we remain focused on how prospective learners explore, evaluate, and ultimately choose the University of Phoenix as they look for ways to advance their education and careers. We believe our strong brand, leading position across social media among our peer set, career-relevant content, media expertise, and broad digital presence provide a solid foundation in this changing environment. This foundation has provided strong support for adjustments to our digital acquisition strategies to meet the evolving needs of prospective learners who increasingly use AI in their search process. The recent launch of the Build for Real Life campaign has been one of our more successful campaigns and is an important evolution in how we communicate what differentiates University of Phoenix. It has been effective at maintaining strong demand for our brand and is designed to provide authoritative, evidence-based content around the most important decision factors in the manner that influences AI-powered search. We will continue to adapt our approach to meet learners wherever they are making decisions about their education. I also want to briefly touch on the Department of Education's recent fraud prevention initiatives. As I've discussed on previous calls, We support the Department's efforts to strengthen fraud prevention and protect the integrity of the federal student aid system. Importantly, the Department's enhanced controls and the recent initial data we've reviewed from the Department has reinforced our confidence in the effectiveness of the fraud detection and identity verification processes we already had in place. Before I close, I'd like to welcome Robert Brackenberry to the Phoenix Education Partners Board of Directors. Robert brings extensive leadership and governance experience, most recently serving as Deputy Chief Investment Officer for the State of Michigan Retirement System, where he helps oversee more than $170 billion in pension and trust assets for a fund with a long-term track record of outperformance amongst large public pension funds. Combined with a decade of higher education leadership experience, Robert brings valuable perspectives, and we look forward to his contributions to our board. As we look to the future, an important part of our growth strategy and capital allocation approach is evaluating opportunities that complement our core business, enhance our ability to serve learners and employers, and strengthen our long-term value proposition. Playing a key role in leading these efforts, I'd also like to welcome Michael Cochran as our Senior Vice President in Corporate Development. Michael brings extensive transaction and strategic advisory experience. experience most recently as an executive director at morgan stanley where he serves as a key leader supporting the company and its return to the public markets as we enter the final quarter of 2026 we remain focused on executing against our strategic priorities supporting student success strengthening employer relationships and helping learners build the skills they need to succeed in a rapidly evolving workforce the progress we continue to see in student outcomes reinforces our confidence in our strategy. Supported by a strong financial foundation, disciplined execution, and continued investment in our students, we remain confident in our long-term trajectory and our ability to create value for learners, employers, and shareholders. With that, I'll turn the call over to Blair.

Thank you, Chris. I'll begin with a review of our third quarter financial results, followed by updates on our balance sheet, capital allocation, and fiscal 2026 outlook. For the third quarter, net revenue was $271.8 million, compared to $271.7 million in the prior year period. Average total degreed enrollment increased 0.6% for the third quarter to approximately 85,300 students, compared to 84,800 in the prior year, with continued strength and retention. Net income attributable to Phoenix Education Partners was $39.2 million, or $1.01 per diluted share, compared to $53.8 million, or $1.42 per diluted share in the prior year. The decrease was primarily driven by higher share-based compensation expense associated with our IPO, which increased $7.8 million compared to the prior year period. an increase in advertising expense, and higher strategic alternatives, restructuring, and other expense. Adjusted EBITDA for the quarter was $78.1 million, compared to $83.4 million in the prior year, a decrease of 6.4%. Adjusted diluted earnings per share was $1.43 in the third quarter, compared to $1.57 in the prior year. Adjusted EBITDA margin for the third quarter was 28.7%, compared to 30.7% in the prior period, primarily driven by higher advertising expense, which increased $5.6 million in the third quarter to support the accelerated launch of the Built for Real Life campaign. This was partially offset by lower bank debt expense due to higher retention. For the first nine months of fiscal 2026, net revenue was $756.3 million, an increase of 0.9% compared to $749.8 million in the prior year. Average total degree enrollment increased 2.2% for the first nine months for approximately 84,500 students, compared to 82,700, reflecting continued strength in retention. Net income attributable to Phoenix Education Partners was $65.4 million, or $1.69 per diluted share, compared to $116.4 million, or $3.08 per diluted share in the prior period, with a year-over-year decrease primarily due to share-based compensation expense associated with our IPO. For the first nine months, adjusted EBITDA increased 1.2% to $188.1 million compared to $185.8 million in the prior year. And adjusted diluted earnings per share was $3.40 compared to $3.49 in the prior year. Adjusted EBITDA margin for the first nine months was 24.9% compared to 24.8% in the prior year period. These results reflect the increase in net revenue as well as lower bad debt expense, primarily due to higher retention. Our results continue to benefit from strong retention trends and disciplined cost management, which we believe support long-term margin expansion, scalability, and strong cash generation. We continue to maintain a strong balance sheet with substantial liquidity and no outstanding debt. As of May 31, 2026, our cash and cash equivalents and marketable securities were $269.4 million, compared to $194.8 million as of August 31, 2025. The increase was principally due to $116.7 million of cash generated from operating activities, which was partially offset by $17.4 million of cash paid for dividends and dividend equivalents, $15 million of capital expenditures, as well as net cash paid to settle share-based awards and common stock repurchases. Our capital allocation priorities remain focused on investing in student outcomes, technology-enabled capabilities, and strategic growth opportunities while maintaining financial flexibility and returning capital to shareholders. In April, our Board of Directors approved, and we announced a $50 million soft repurchase program. In the third quarter, we repurchased approximately 135,000 of our common shares for an aggregate purchase price of $4 million at an average of $29.29 per share. As of quarter ends, we had approximately $46 million remaining available for repurchases. Today, we announced another quarterly dividend of $0.21 per share, payable on August 14th. We expect to continue to pay quarterly dividends in subsequent quarters of $0.21 per share, which equates to $0.84 per share annually, subject to board approval. We also continue evaluating select M&A opportunities that complement our workforce-aligned capabilities, disabilities, learner experience, and employer ecosystems while maintaining financial discipline. Turning to our fiscal 2026 outlook, based on our expectations for the remainder of the year, we anticipate net revenue will be in the $1.02 billion to $1.025 billion range, while the revised outlook primarily reflects the transitional impact of our digital enrollment strategy as we adapt to an evolving search and discovery environment, we remain confident in the long-term demand for University of Phoenix and our ability to successfully execute our strategy. We are also raising and tightening our fiscal 2026 adjusted EBITDA guidance and now expect adjusted EBITDA to be in the range of $246 million to $250 million. This updated outlook reflects disciplined cost management and the benefits of our strategic and operational initiatives, including technology and AI-enabled capabilities, that continue to support efficiency, scalability, and student outcomes. We continue to operate from a position of financial strength, supported by healthy cash flow generation, a debt-free balance sheet, and disciplined capital allocation. These attributes provide the flexibility to continue investing in our strategic priorities while supporting long-term value creation. I'll now ask the operator to begin the question-and-answer session.

Thank you. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is star one to join the queue. And our first question comes from the line of Greg Parish with Morgan Stanley. Your line is open.

Hey, guys. Thanks for taking my question. Or maybe after. I forgive. Maybe just how the level is set here, like what, especially on enrollment growth, of what's changed versus the initial expectations that you've had. You know, what's going on in the market that maybe was different than nine months ago? You know, you talked about search changes, talked about the last quarter. I think that's the only thing you mentioned again today. I mean, is this all search changes or maybe anything else to call out? And, you know, what's structural versus what's temporary? Maybe just helps there.

Thanks, Greg. I'll take that question. really first and foremost I think it's important to point out that we're not seeing weaker demand for our programs in fact demand for University of Tennessee brand remains strong one of the measures we've followed for years is branded search on Google and you can see that we continue to be one of the top two brands across the competitive set and we are top in terms of growth year over year so the interest is there As you alluded, 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. And what I'll say about it is, you know, we've been preparing for the shift for a long time. So this is a transition. You know, for example, we talked about our Built for a Real Life campaign that we accelerated into Q3. That campaign is designed to make our differentiators highly visible. There's many claims across the most important attributes that adult learners care about, from exceptional flexibility, affordability, transparency, career-relevant education, and really consistently high student and alumni satisfaction. And that is one of the things we're doing to make sure that those evidence-based differentiators are put out on the digital platform in a way that the AI-powered search picks it up and presents us favorably based on the differentiators with our competitors. And so we've been doing a lot alongside those types of issues. but that has created near-term impact. Now, long-term, strategically, you know, we believe this change in the search environment is going to be a favorable thing for institutions that have built credible evidence around their differentiation, and that's where we see ourselves well-positioned in the market. So we see this as a transition and a shift that we've been working through, which is why we modestly reduced our revenue outlook for the year. Now, in terms of other factors, it's probably worth mentioning that we did have a very temporary level of friction on enrollment related to, I mentioned in my remarks, the unusual enrollment activity. That's all really good news for us. We've talked about the control structures we put in place. Those continue to be validated, but one thing that did happen this prior quarter that I've mentioned in previous calls that we were anticipating is the Department of Ed has rolled out their system of new detection and verification controls as part of the FAFSA process. And in that process, they have risk identifiers now that they share with institutions that are signaling that different levels of risk around potential unusual enrollment activity or what they call potential identity fraud or ghost students. The good news is anything that they flagged in their process, and they flagged all of, or they looked at all of the 2026 and 2027 applications, at which because we're a non-term, continuously enrolling institution, we actually had over 70,000 applications that had been filled out by either current students or prospective students in the enrollment process, not all of those students by any means were flagged, but the ones that were flagged were very consistent with our internal controls. So that was a validator that we've got, you know, robust controls, and as does the department, which is a good thing. But that did create some friction because with the new regulation, when students are flagged, institutions are required to take them through a process. And because they did a look back, we had sort of a one-time process at which we had to work through these students. And that's behind us. And I wouldn't think it was anything meaningful. I didn't mention in my remarks as a result. But given you asked the question, if there was anything else related to what we communicated, that was another factor.

Yeah, yeah. Okay, fantastic. And maybe, like, just taking all that forward and then maybe just a refresh on, like, thinking how you think about, you know, in your team the long-term growth rate of this business, you know, how do you see that evolving? And then as we go into 2027, do you expect to, you know, be within your long-term framework in 2027?

Yeah, well, we're not giving the outlook for fiscal 27 on this call. We will be sharing that on our next earnings call. But in terms of the long-term outlook, you know, we still feel that our previous communications on the long-term outlook for the business are consistent with today. You know, we are in the middle of a shift in how search is conducted. But, you know, it's worth saying that, like, we've set a very strong foundation. Most importantly, our brand demand is high, and that's really a paramount matter. And then it's really about setting up our differentiators in a way that search engines that are being utilized by prospective students can pick up our differentiators. And like I said earlier, we think over the long term this is actually going to be a strength for universities that have clear differentiators that they've earned in the marketplace. We see satisfaction across all the key attributes that adult learners care about, most importantly, the relevancy of our curriculum. So we think that that's going to play out in a positive way over the longer term. And so we feel good about where we're at. The other thing worth mentioning in terms of the near-term impact is we have other channels that continue to perform very well that have no impact on AI search. We're seeing healthy growth in our B2B channel. We continue to expect that to grow because we've not only been very effective with our account management processes across our 2,500-plus employers, we continue to build more strategic relationships with employers, like the example I shared with Wabash in my remarks. And so that will continue to drive success. We also see very healthy demand continue to come to the university, and we've continuously improved our ability to meet that demand effectively with personalization, leveraging AI and technology throughout the enrollment process, where we're seeing continued improvements and conversion of that demand into what become new students for the university. So all of those things give us confidence in our long-term expectations.

Great. Thank you for that. And if I may just slip in one quick modeling question, and then I'll pass it off. Just stock-based comp, you know, coming out of the IPO is a little elevated. This quarter was 3%. And maybe just help us, what's the right level of stock-based comp as a percent of revenue to think about just, you know, in the go-forward model.

Hey, Greg, it's Blair. Thanks so much for the question. So our Q326 share-based comp expense was $8.5 million. And as mentioned on previous calls, a little less than half of SBC is associated with the modification of pre-IPO stock options, not new stocks. And the majority of the remaining expenses associated with shares granted at IPO or post-IPO. When you take a look at year-to-date expense of $47.6 million of SBC, that includes a number of different components. Approximately $31 million is related to the modification of stock options, as well as $4 million is incurred in Q3. Then you have approximately $3 million, unrestricted share grants, the very limited number of employees, and less than a million from pre-ITL awards. The only ongoing component of that is approximately $13 million from newly granted awards at IPO or post-IPO. It's generally best over three years. And then, as always, I direct you to our fiscal 25 form 10-K and our 2326 form 10-Q. You can see it's in the pin portion of your own past SEC. Let's see, as I mentioned.

Okay, great.

Okay. And our next question comes from the line of Jasper Bibb with Truist Securities. Your line is open.

Good afternoon, everyone. Just wanted to give a little bit more color on the enrollment growth rate. I think in the prepared remarks you talked about strength in retention, kind of supporting the 1% enrollment growth. I know you don't disclose it, but did you provide, like, a little bit of color on what you're seeing in New Starts so far this year and in the past quarter?

We don't disclose new starts, but one thing that I'll point out, Jasper, that, you know, we've mentioned on past calls is from a revenue growth perspective, we did have a higher propensity of students that didn't retain beyond the earlier courses last year, kind of walked through the background on that and shared that we were not experiencing that coming into this year. And that has been consistent, and the impact of that from the 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. In terms of, you know, new student growth, you know, we feel good about the demand we're We do have this near-term impact as we have been navigating some of these early changes um in search um but uh you know as i said earlier we feel um good about the demand we're seeing we also feel good about the uh the response that we've had i mean one thing that's worth mentioning is we've planned for a lot of the response uh for a long time right now uh knowing that search is changing and we're seeing the impact um of uh the foundational changes we put in place to make sure that we're getting picked up properly with our differentiation in AI-powered search. And we manage that across thousands of prompts, and we can see the traction as we shift into this new environment. So, you know, we see strong demand. We're seeing good progress there. And I would just caution you to look at the growth rate overall for revenue this quarter as being a little bit masked by that year-over-year issue I mentioned earlier.

And then I had an expense for tithing expense for about 16% every year in the quarter. I know that can bounce around a little, but can you just talk about maybe the drivers of the increase in advertising this quarter?

Was that kind of related to the AI shift you talked about, and you expect, I guess, the spending on advertising to moderate at all in the fiscal fourth quarter? yes certainly jasper uh 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 achieve prior education uh we did ultimately make the decision to accelerate the vote for real life campaign which is designed to differentiate university of phoenix's work in a both strengthening the popular funnel awareness and consideration And we believe this and other marketing initiatives will support long-term growth in enrollment. That, coupled with anticipated expansion of our direct channels, including employer-employed enrollment, we believe these investments will enhance our acquisition efficiency over time.

One thing that's probably worth mentioning is the federation of the real-life campaign, that was actually pretty phenomenal work across our marketing team. And the reason we did that, you know, that was planned to be launched later in the year, closer to fall. But because it was built on broad evidence-supported claims, we decided we should launch sooner given the impact of the AI-powered search. because not only has it – and it's been very effective at driving strength in our brand demand, but it's also built and designed to help optimize for AI college service. So that was – you know, we did spend higher, but part of that was accelerating that decision earlier in the year.

Got it. That makes sense.

And our next question comes from the line of Alex Paris with Barrington Research. Your line is open.

Hi, thank you, and thanks for taking my questions. First question is, back at the time of the IPO, and I'm not sure if you've published it since, you sort of broke down enrollment by fields of study. At the time, 63% was business and IT. I look at it as three buckets. It's 31% health care and related, that includes social and behavioral, as well as health care professions and nursing, and then 4% education. I'm wondering, you know, year-to-date or in the third quarter, or however you would like to answer the question, where has been the area of strength and areas of less strength?

Yeah, thanks for the question. Yet, you know, we're seeing, you know, we have a diversified portfolio of programs. They're aligned to in-demand fields. You know, there's different levers that seem to contribute more to growth at different periods of time. I don't have, and maybe Blair does have, a recent breakdown, but it's pretty similar to what you described. However, we have seen stronger growth in healthcare. I mean, the macro trends there have been strong. And I think the closest barometer to what's going on in the marketplace is really looking at where we're seeing growth with our employers. Health care is just under a third of our B2B relationships. Now, that's health care organization. So we're seeing strong growth in our health care-related programming, But we're also seeing growth in other non-healthcare-related programming as a result of that part of the sector growing. And so that's another element that we see is when you're in growing verticals, and we have several, health care being one of them, that are growing healthily, you see growth of really all of our programs in those verticals. But I would say, you know, health care, the areas that you mentioned have been growing at a higher rate than other programs. But the skills alone curriculum, we're seeing growth across, you know, different parts of our portfolio as well across the B2B network. And we think that's reflective of both the demand we're seeing on B2C or the demand that we expect to see in certain parts of B2C as the differentiators that employers are responding to become clear to the broader consumer base.

Great. That's helpful. I appreciate that. And then just a question and comment on guidance. It's given your updated guidance, you know, revenue is slightly below your prior guidance and adjusted a bit narrowed and slightly above your prior guidance. I think the year is going to kind of come in where you said it was last quarter. You had said if you look at the midpoint of the new guidance, it's at the low end of the prior guidance. And if you look at the midpoint of the updated guidance, it's at the high end of prior guidance. And that actually suggests 3.4% revenue growth in the fourth quarter, 5.8% adjusted EBITDA growth in the fourth quarter at the midpoint. So it looks like we're kind of at that long-term growth algorithm. Mid-single-digit top line, maybe a little bit below. and then mid-simular digit plus earnings. Is there any reason to think that that long-term algorithm wouldn't hold for fiscal 2027?

That's a very good breakdown of the facts, but we're not providing an outlook for fiscal 27 now. So, I mean, for now, I'll be told to, you know, my comments earlier that, you know, And we're comfortable with the long-term expectations that we've indicated quickly. But, you know, we're going to close out the year here and be ready to share more about District 27 in the next term.

Great. And then the last question, just to sneak in here, is regulatory. And you talked about regulatory on the prior several calls with the one big beautiful bill, negotiated rulemaking, and then some of those rules like grad loans and earnings accountability going into effect July 1st. There were some positives there, kind of a delayed effectiveness on earnings accountability. But more recently, there's been some word out of the front row of education that they're not done, that they're going to do some more negotiated rulemaking this fall, one of which is taking a look at the 90-10 rule, which applies only to for-profits. with your number at about 88%, and I know that's comfortably below the limit. What are your thoughts, or what are you hearing about 90-10 changes coming?

Yeah, I think I'm hearing similar things that you are. I hate to speculate on 90-10, but I do know that there is some acknowledgement that the ratio is worth revisiting. i i think they're pretty common acknowledgement um that we've heard in that um any kind of accountability metrics should really be applied against uh all of higher ed um and uh you know 90 10 is currently not um handled that way um so you know 90 10 is uh you know i hate to be critical of the metrics but it doesn't necessarily align with student success in the way that we you would prefer. So, you know, there is some hopeful discussion going on that's consistent with what you think.

Great. I appreciate the extra color. Thank you very much. I'll yield to the next color.

Our next question comes from the line of Jeff Silver with EMO Capital Markets. Your line is open.

Thanks so much. I wanted to circle back to the discussion at the beginning about how students are changing the way that they look for institutions. institutions. You know, it's a two-par question. One, can you give us a rough estimate of what percentage of leads are now coming from LLMs and how that's changed over the past year? And then, two, you mentioned a few times that you need to position yourself so the LLMs pick up your differentiators. Can you give us, again, some examples about how you are doing that and how successful you've been there. Thanks.

Thanks, Jeff. Well, let me hit the second question first. So, you know, we're doing a lot of things around making sure that discovery is optimized. You know, best practices have emerged and continue to emerge across any kind of digital platform or any method at which you put content out into the universe on the website or through digital channels. Social media has become very much a rich source for the AI-powered LLMs. Google has pointed out YouTube as being a more primary source. I know I mentioned that in the last call. Video is becoming a more effective and primary source for the LLMs. And so we are staying on the sort of, I would consider, leading edge of where the market is going. We work closely with Google. They now have this partnership that we announced today with OpenAI to know, you know, where is the market going as well as working with outside experts. And we feel like we're well-positioned across all those things in areas. We're number one on social media. We've seen really some examples that you asked for. On YouTube and our social media and content generation, we're seeing a lot of progress. And we measure this stuff carefully. There's thousands of prompts that are really important to adult learners. We monitor those regularly and correlate them to these activities to know what is working. And that's where we're seeing the traction. LinkedIn is another rich source. LinkedIn is a great source for us. We have a very strong engagement. A lot of that engagement is built around clear differentiation, not only the claims that we can make across critical attributes that matter to adult learners, but our alumni and students engage around their experience at the University of Phoenix, and that more and more gets picked up by the LLMs. In fact, we have 750,000 people on LinkedIn that report either graduating or having attended the University of Phoenix. So, you know, there's many more examples that I can give you, but we've got a pretty broad set of initiatives that are really optimized to increase discovery. and again, over the long term, we think this is going to be a very positive thing because if you have clear differentiation, that's going to be a benefit as AI presents that differentiation more and more clearly to prospective students at the time. And then in terms of the percentage of leads, it's difficult to give you a percentage. What we are seeing is, I mean, we have a tremendous amount of demand that comes to us And what we do is we look at how that demand engages with us at a very detailed level. So, you know, some of the changes, just to give you an example, is we may have demand that historically came through a search channel, and then they came to our website, and they may start an application. The change may be that we have demand come directly to our website. We can't point, in all cases, to the LLM that they came from. And then we see that person comes to the website multiple times before they start an application. So when I say that it's become a more iterative and elongated process, we're seeing that type of behavior with the percentage of the enrollment. So, you know, it's pretty intensive. We can see the visibility, which is good because we can react to it make sure that we're providing experiences that help us um provide um those incoming prospective students with what they need uh and respond to the changes in how they shop um but i can't i can't necessarily give you a percentage um uh you know it's it's uh it's not necessarily a huge percentage that has shifted but um any shift in the process is is is something that we need to adapt to in the near term, which is what's occurring right now.

All right. Thanks so much.

Line of George Tong with Goldman Sachs. Your line is open.

Hi. Good afternoon. You talked about initiatives to make sure your differentiation is getting picked up by AI-powered search. How long do you think it'll take before AI-powered search produces results that are similar to or better? George, that's a really hard question to answer. The, you know, I really would be speculating, you know, what I can say is, and I think this is, you know, been pretty encouraging sort of early days here, is we can see the impact of the things that we're doing to improve how we show up, meaning, you know, the number of citations, how often our brand shows up. And so, you know, I think that encourages me that this will be, you know, a transition that, like, will start to be more data-driven in how we discuss timelines and when we'll get there but it's still pretty early so it's hard to give you a view of when when this will you know get to a world that was similar to how search had been conducted in the past is probably pretty obvious is you know one of the benefits of how search occurred before is it was it was purely on you your ability to market claims that you can make and and for us you know that that has always been a strength it continues to be a strength because we have uh strong evidence supported claims and we've been great at marketing those claims um in the future i think that still is a huge contributor but the other contributor is really the ai search is going to um um show comparisons of institutions based on what they deliver for us to their students or for employers. And that's where I think the real opportunity is. It's not generated by your marketing. It's generated by your outcomes. And our outcomes, we think, position us well for how that matures over time. So I think that's just worth reinforcing. Got it. That makes sense. And then you mentioned that the Department of Education ruled out their system of detection and verification controls as part of FAFSA, what's the likelihood that the Department of Education rolls out additional systems of detection that could impact the funnel and onboarding process? I think the department is, one, likely to, you know, continue to bolster and enhance their control structures, either to make them more efficient or to adapt to an evolving sort of threat environment. We've been doing that for quite some time now. You have to be adapting. You have to constantly be improving. But, you know, when I look forward, I actually think anything that they do that creates responsibilities for the institution is likely mitigated by the fact that now the department has frontline defense and control mechanisms that didn't exist prior to rolling these out. So prior to the moment of doubt, like, we were fully dependent on our systems in dealing with the incoming threat actors with our control structure. Now we have a front-line defense, and those same threat actors have to go through the department before they even arrive at our doorstep. So I think that's likely to reduce any kind of friction, likely meaningfully into the future, if I were to speculate.

Got it. Very helpful. Thank you. You're welcome.

And as well as Mender, it's our one to ask a question. And our next question comes from the line of Rob Sanderson with Loop Capital Markets. Your line is open.

Thank you. Good afternoon. Thank you for taking my question. Chris, I wanted to ask about healthy growth in your B2B partnerships that you mentioned earlier in the call. A couple questions on this. Is the expansion of your managed accounts having kind of the expected stimulus on enrollment here, and is that going to be a growing focus for the university in the year ahead? Is B2B enrollment, you know, is it kind of coming up on 40% of total now? I mean, it's been a while since you've had an update. Is there anything you could point us to on that? And then could you also give us a sense of impact to revenue and profit contribution as your enrollment mix continues to shift to this channel?

Any color you can provide on that would be helpful. and then i do have a follow-up okay um yeah so we continue um to to see healthy growth um from the investments we've made in our account management uh that we've talked about in previous calls um you know we've gone uh to 36 of our enrollment now in this past quarter versus 33 in the previous year uh and we expect that growth to continue uh based on the performance we've seeing as we continue to invest in account management, and as we continue to lean into more strategic relationships, like I mentioned with the Wabash example earlier, and so I do think that that will be a continued focus going forward in the fiscal 27 and beyond. In terms of, you know, this is a strong driver of revenue growth, there is a slight, over Over time, we've been seeing a slight reduction in revenue for students. However, when you look at the profitability dynamics of our B2B channel, these students tend to retain and complete at higher rates. So the profitability has been very similar when we have done point-in-time measurements in the past. And we think if the channel gets more and more efficient as we're able to expand through account management that the profitability dynamics likely over time and the beat of the channel are going to likely improve versus the lower revenue that we receive from those based on the discounts that we provide under the tuition assistance programs. So, you know, we think that the demand dynamics and trends are strong there and will continue into the future.

Okay, perfect, thanks, Chris. And then a follow-up, I wanted to ask a little bit more on your AI initiatives. Can you talk about your tech platform investments? You know, I know that was a big focus, you know, prior to the IPO. And just, you know, how does that help the university move more quickly on implementing these AI initiatives? And do you think that gives you a large differentiator, medium differentiator? How does that better position you compared to other education providers? and then related, you know, does your open AI collaboration, you know, does that give you an opportunity to, you know, align even more deeply with your B2B partners? Like is there some extra layers of potential synergy between bringing these companies together and just, you know, how important is sort of your AI strategies to your sort of long-term vision?

Yeah, thanks for that question. And we're really excited about our vision of where AI can take us across the university. We're focused on three key areas where we think AI will continue to be transformational in us pursuing our vision. And the first area is just improving the learner experience based on the tremendous investments we've made in our data foundation and tech foundation. and also secondarily is just driving operational efficiency and how we deliver education and how we continue to get students better outcomes while reducing the cost to deliver those outcomes. And then the third area, and, you know, in my view, the most important, is our ability to equip adult learners with the skills that they need in a workforce that is being heavily impacted by AI. You know, we embrace AI in the classroom early, ethically and responsibly. We've woven AI into all of our curriculum. We've included skill development in every course that a student takes, and we're building more deep integration of discipline-specific AI assignments across all of our curriculum. We think we can move much more nimbly, and we have moved much more nimbly than a lot of the competition because most of higher education has to go through a lot of governance systems just to adopt the governance philosophy. We're well ahead of that, and we're equipping our students with AI skills today that are relevant in the workforce today, and we think we have a lot of continued upside along those lines. OpenAI, this collaboration, we view it as very strategic. It accelerates all of these efforts. OpenAI is, you know, obviously one of the, you know, primary pioneers being utilized by the workforce. And so part of this agreement is simply providing those tool sets to our students and our faculty so that we can more deeply integrate those tools into our curriculum. But more importantly, we're going to collaborate with OpenAI on curriculum, on skill development, on pathways to the workforce. We look forward to finding ways to conduct research to really make sure that we're equipping adult learners with the skills they need today and into the future. And then on the back end, you know, we've been using OpenAI as a primary tool for quite some time now, and we have considerable opportunities to continue to scale our models to continuously improve student outcomes while driving operating leverage into the business. The example that I shared earlier, the one-team assistant, is just one example, and it just shows the power of the tool. I mean, in fact, we wrote that out across advisors, but that's a generative solution that summarizes exactly where they are with a student, something that historically took some time to get organized at the beginning of a call, and it offers up next action so they can jump right into the most strategic part of the discussion. This saves considerable time as well as gets the student to a better outcome. And this is really just the start of how we're scaling solutions with the human in the center so that we can continue to leverage AI in ways that make our advisors stronger and better in working with students and reduce costs to delivering that process. And as part of the OpenAI collaboration, you know, we will be working with our solution engineers to accelerate those advancements also in the learning experience and operational efficiency areas as well.

Okay, thanks for all that.

You're welcome.

And our final question comes from the line of Jack Slevin with Jeffries. Your line is open.

Hey, thanks for taking the question and appreciate you squeezing me in here. Sure. Maybe I'll wrap two questions into one here so we can get everyone on their way to the top of the hour. Just on the guidance point, revenue accelerates a little bit. I think you've hit a lot on sort of what's been happening on the AI and the search front, but more just sort of from a numbers perspective. When we think about what's implied in that 4Q revenue guide, a little step up in the pace, can you talk about what sort of the drivers are there that they can be confident that you can get that growth rate turned up a little bit? versus the past two quarters? And then the second question, just on the buyback front, you know, only $4 million of the $50 million authorization. How are you thinking about pacing, and how quickly could you push that if you decided to really pull the lever, so to speak?

Yeah, on the revenue point, it's, again, we're not, it's hard to get too deep into it in terms of guidance beyond Q4. But in terms of your question, you know, we've seen healthy retention that's continued. We're seeing strong demand. And as we look through this shift that we're seeing with AI search, you know, we are seeing improvements as we navigate those changes. So those elements do play into how we're seeing Q4 versus, you know, Q3. The other element, and Jack, I know you're new, so welcome, and you may be familiar with this, but we did have revenue that was generated, again, last year for a higher propensity of students that were coming into our risk-free program, which we offer to students with higher risk characteristics, sort of a try before you buy, and the students that made it through that last year, we had a higher propensity drop from the institution in earlier courses. And so that's shown a little bit of a softened growth rate in Q3 and Q2 versus Q4, where we didn't have that experience year over year. So that's just another thing to keep into consideration. In terms of the other question on the buyback, I'll hand that over to Ed.

Yeah, thanks, Chris. Thank you, Zach. Great to meet you virtually. I appreciate the question. I'll just touch briefly upon our capital allocation strategy. Our priorities really remain unchanged, and as discussed on this call, we are continuing to invest in success, technology, and other initiatives that support our long-term sustainable growth. We do maintain a strong financial position with approximately $69 million of cash, cash requirements, and marketable securities, and no debt, as well as the revolving credit facility that provides for additional flexibility. We do remain committed to returning capital to shareholders through our quarterly dividend and share repurchase program, and as mentioned, we currently have $46 million in capacity. Any consideration of accelerating our buybacks, we would think about quotes as well as volume considerations, so we'd be very thoughtful as we approach that. And then, obviously, as has been discussed, we want to continue to evaluate and may offer some needs that complement our long-term strategy, enhance our capabilities, and create long-term.

Appreciate the welcome, guys, and all the color there.

Thank you. And that concludes our question and answer session. I will now turn the conference back over to Mr. Chris Lynn for closing remarks.

Okay. Thank you, everyone, for your questions and for joining us today. Our strategic priorities remain centered on student outcomes, employer engagement, and preparing learners for a rapidly evolving world of work. Those priorities continue to guide how we invest, innovate, and execute as we create long-term value for learners, employers, and shareholders. I want to thank our faculty and team members for their continued dedication to our students and their commitment to helping working adult learners achieve their educational and career goals. Thank you for your continued interest in Phoenix Education Partners.

And ladies and gentlemen, this concludes today's call. Let me thank you for your participation. You may now disconnect.