Phoenix Education Partners Q2 Earnings Call Highlights

Key Points

• Phoenix reported Q2 net revenue of $222.5 million (down 0.4%) with average degreed enrollment up 1.8% to ~82,600; adjusted EBITDA rose 7.8% to $34.8 million and margin expanded to 15.7%, while net income fell to $10.8 million primarily from higher share‑based compensation after the IPO.
• Management pointed to retention as a key driver — the most recent annual cohort retention reached 76.6% (up ~500 bps year‑over‑year) aided by a digital‑first platform and AI tools — and employer‑affiliated enrollment grew to 35% of total, with over 1 million digital skill badges issued.
• Executives said Google’s AI-driven search changes disrupted the marketing funnel (prompting more outcomes content on YouTube) but trends began normalizing in early March; the company reiterated FY26 revenue guidance (expecting to trend toward the lower end) while expecting adjusted EBITDA toward the upper end, and maintained a $0.21 quarterly dividend plus a $50M buyback authorization.

Phoenix Education Partners NYSE: PXED reported second quarter fiscal 2026 results that showed modest enrollment growth, slightly lower revenue, and improved profitability, as executives pointed to stronger student retention, ongoing expansion in employer-affiliated enrollment, and cost discipline. Management also discussed recent disruptions in the company’s marketing funnel tied to changes in Google’s AI-driven search experience, and said early third-quarter trends have improved following adjustments.

Quarterly results: enrollment up, revenue slightly down, profitability improved

Chief Financial Officer Blair Westblom said second-quarter net revenue was $222.5 million, down 0.4% from $223.4 million a year earlier, which he attributed to “the impact of discounts.” Average total degreed enrollment rose 1.8% to about 82,600 students, compared with 81,100 in the prior-year period, “driven by strong retention trends.”

Net income attributable to Phoenix Education Partners declined to $10.8 million, or $0.28 per diluted share, from $16.1 million, or $0.43 per diluted share, in the prior year. Westblom said the decrease was “primarily driven by higher share-based compensation expense associated with our IPO.”

Adjusted EBITDA increased 7.8% to $34.8 million from $32.3 million, and adjusted diluted earnings per share rose to $0.58 from $0.56. Westblom said adjusted EBITDA margin expanded to 15.7% from 14.5%, “driven by lower bad debt expense primarily due to higher retention,” partially offset by higher costs associated with being a public company.

Retention gains highlighted as key driver

Chief Executive Officer Chris Lynne emphasized retention as a central factor behind performance. He said the retention rate from the most recent annual cohort was 76.6%, up about 500 basis points year over year, and improved from 59.7% for the annual cohort ending in 2017, which he described as “prior to our transformation.”

In response to an analyst question on whether the pace of retention improvement is sustainable, Lynne said the company has been in an extended transformation focused on student outcomes and expects continued progress, but cautioned against expecting a similar year-over-year jump each year. “I would not expect that year to year,” he said, adding that a 100-basis-point improvement in a year would be “a pretty meaningful jump.”

Lynne attributed retention improvement to multiple initiatives, including a “technology digital first platform” that uses data to better support students, along with changes such as mobile-ready courses early in a student’s program and “dispersed by course,” which he described as a meaningful driver of persistence. He also pointed to expanding use of AI-enabled tools, including transcript evaluation support, call summarization for student-facing teams, and other “human-in-the-loop solutions” intended to reduce cycle times and improve support.

Employer-affiliated enrollment expands; more than 1 million digital badges issued

Lynne said the employer-affiliated, or B2B, channel remains a “meaningful growth driver.” Employer-affiliated students represented 35% of total enrollment during the quarter, up from 31% in the comparable period last year. Lynne said B2B students “typically have higher retention” and described the channel as supporting revenue durability.

He also said the company has issued more than 1 million digital skill badges to date, describing them as “shareable, employer-informed skill badges” designed to help students and alumni demonstrate verified capabilities. Lynne said the company continues to align curriculum to in-demand skills, and noted healthcare employers represent the largest segment of the B2B portfolio at “just under 30%,” with growth cited across programs including business, IT, and healthcare-related offerings.

In the Q&A, Lynne said the company increased the size of its account management teams by about 25% this year and is seeing benefits both from expanding existing employer relationships and adding new ones. However, he said the company was not providing a long-term target for how large the B2B channel could become.

Marketing funnel volatility tied to AI search algorithm changes

Management devoted a portion of the call to changes in online search behavior, particularly related to Google’s AI overviews. Lynne said the company saw an algorithm shift that affected how prospective students navigated search, with effects becoming noticeable around the January enrollment period. He said the shift occurred earlier in the quarter, with the impact “noticeable really in the later part of the second quarter.”

As part of the response, Lynne said the company determined that Google’s AI overviews had become more reliant on YouTube as a primary source, prompting Phoenix Education Partners to migrate more outcomes-based content to YouTube. He said the company has seen improvement heading into the third quarter, with trends beginning to normalize in early March.

Westblom said the company reiterated its fiscal 2026 net revenue guidance of $1.025 billion to $1.035 billion, but “currently expect[s] to trend toward the lower end of the full-year range,” reflecting the near-term marketing dynamics. Lynne described the stance as “prudence,” noting there is a cycle time for demand to work through the enrollment funnel and that seasonality affects when students enter classes.

The company also reiterated adjusted EBITDA guidance of $244 million to $249 million. Westblom said Phoenix Education Partners expects to trend toward the upper end of that range, attributing the outlook to cost management and efficiencies tied to operational initiatives, including AI and technology-enabled capabilities.

Capital return: dividend maintained; $50 million buyback authorized

Westblom said Phoenix Education Partners ended the quarter with substantial liquidity and no outstanding debt. As of Feb. 28, 2026, total cash, cash equivalents, and marketable securities were about $252.1 million, up from $194.8 million at the end of the prior fiscal year. He said the increase was primarily driven by about $80 million in operating cash flow, partially offset by roughly $10 million in capital expenditures and dividend payments.

The company paid a quarterly dividend of $0.21 per share during the quarter and announced another $0.21 per share dividend payable in May. Westblom said the company expects to continue quarterly dividends of approximately $0.21 per share, subject to board approval.

Westblom also announced that the board authorized a $50 million share repurchase program, describing it as providing flexibility within the company’s capital allocation framework and helping manage dilution over time.

On regulatory questions, Lynne said changes related to program participation agreements and private equity ownership were not expected to affect the company, noting it entered into a six-year agreement last year and “we don’t anticipate any impact” based on guidance received.

Lynne closed by saying the quarter reflected continued progress executing the company’s strategy and reiterated confidence in the business model and mission focused on working adult learners.

About Phoenix Education Partners NYSE: PXED

Our Mission To provide access to higher education opportunities that enable students to develop the knowledge and skills necessary to achieve their professional goals, improve the performance of their organizations and provide leadership and service to their communities. We are a mission-driven organization operating at the forefront of the rapidly evolving post-secondary education market. As one of the largest online education providers and a pioneer in our field, we benefit from the dynamic interplay between technological innovation, education, employment and economic trends.

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