Prepared remarks
Good afternoon, and welcome to Phoenix Education Partners Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. Speaking today on the call will be Chris Lynne, Chief Executive Officer; and Blair Westblom, Chief Financial Officer. Before I hand you over to Chris, please keep in mind 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 statement after this presentation, whether a result of new information, future events, changes in assumptions or otherwise. Please see our public filings, including our latest Form 10-K and earnings press release filed today and available on our website for a discussion of risk factors that relate to forward-looking statements. In today's presentation, we use certain non-GAAP financial measures. You should consider our non-GAAP results as supplements to and not in lieu of our GAAP results. We refer you to Form 10-K and earnings press release for reconciliations to the most directly comparable GAAP financial measures and related information. I'll now turn the call over to Chris.
Thank you, Beth, and good afternoon, everyone. Welcome to Phoenix Education Partners' first earnings call following our IPO in early October. We appreciate you joining us today as we share our results of the fourth quarter and full year ended August 31, 2025. Today, Blair and I will discuss performance highlights, recent developments and our outlook for fiscal year 2026. We appreciate your continued support and interest as we begin this next chapter as a public company. At the University of Phoenix, our mission is to expand access to higher education that helps students gain the knowledge and skills to achieve their professional goals, enhance the performance of their organizations and contribute to their communities. Serving working adults has been at the heart of our mission since our founding nearly 50 years ago. Our student body consists primarily of working adults who are seeking opportunities for career advancement, a growing segment of higher education.
75% are currently employed while pursuing a degree. The average age of our student is 38 years old. Over 50% of our students are first-generation college and almost 2/3 are caring for a family while pursuing their degree. We serve this underserved population by putting the needs of our students first, offering flexible career-relevant programs that empower working adults to grow professionally with programs tailored to the realities of balancing work and life. We operate a mission-driven culture built on modern technology, strong academic programs and a data-informed student experience, all centered on student success. Today, the university currently offers 72 degree granting programs and 33 nondegree certificate programs, each aligned to career relevant skills valued by employers. As part of this skills-aligned curriculum, our students have earned more than 900,000 skill badges, which serve as microcredentials, demonstrating mastery of specific competencies applicable in the workplace.
Our transformative journey as a private company allowed us to focus on and deliver significant improvements in student retention, completion and satisfaction rates, demonstrating the strength and scalability of our model. As we begin our next chapter, we're continuing to focus on delivering strong student outcomes through personalized, career relevant and affordable solutions, positioning the university for continued momentum and profitable growth in the years ahead. In fiscal 2025, we delivered solid financial performance in line with expectations outlined during the IPO process, which reflects the strength of our mission-driven model and focus on student outcomes. Average total degrees enrollment grew to nearly 82,000 in fiscal 2025, up from approximately 79,000 in fiscal 2024, supported by strong student retention throughout the year. Expansion of enrollment affiliated with our employer relationships remained a key growth driver this year.
Enrollment through these employer relationships grew to 32% of average total degreed enrollment, up from 30% in fiscal 2024, demonstrating strong sustained demand from working adults through this channel. As the U.S. workforce evolves due to advancements in technology and the half-life of skills continues to shorten, employers are increasingly prioritizing relationships with education providers that align with retention and upskilling strategies. We believe our affordable, adaptable and skills aligned programs remain attractive to employers that are focused on building and retaining talent. We continue to focus on improving student outcomes and increasing operating efficiencies through the use of AI and automation. We are leveraging machine learning and AI across the student journey to enhance marketing, retention and student-facing effectiveness and efficiency. Our technology platform supports long-standing models such as student engagement monitoring and AI-assisted enrollment support.
And we are expanding into a wide range of AI capabilities that enhance personalization, streamline operating workflows and improve both student and staff experiences. As an update on accreditation, earlier this month, our College of Nursing received a 10-year accreditation from the Master of Science and Nursing Program from the Commission on Collegiate Nursing Education, a testament to our faculty and staff's commitment to academic excellence and professional quality. From a regulatory standpoint, we have a strong foundation and ongoing practices to promote compliance across all key metrics. In August of 2025, the Department of Education renewed our Title IV program participation agreement and approved recertification through June 30, 2031, reaffirming our continued eligibility for federal aid programs. Following the recent resolution of the federal government shutdown under a short-term funding measure last week, we note that the shutdown had no material impact on our business or our fiscal '26 outlook.
During the temporary lapse in federal tuition assistance funding for active duty military students, we provided short-term financial relief to ensure their studies could continue uninterrupted, demonstrating our ongoing commitment to supporting students through periods of uncertainty and helping them stay on track towards their educational goals. In Q4, we continued to experience strong applicant demand and sustained improvements in enrollment productivity. We moved certain processes that deter and identify unusual enrollment activity to the top of the enrollment funnel at the application process. As expected, this stopped unusual enrollment activity earlier in the process and enabled our enrollment representatives to better serve our prospective students, resulting in increases in enrollment productivity. We continue to streamline this process, which is leading to continued improvements in productivity.
We're continuing to enhance efficiency across the enrollment process by using advanced analytics, automation and artificial intelligence to better identify prospective students and personalized engagement efforts that are designed to lower acquisition costs and support improved conversion over time. Combined with automation and AI-assisted tools and enrollment, counseling and financial aid, these initiatives are designed to improve the overall student experience while driving continued efficiencies in our cost structure. These factors, as well as continued improvements in retention, supported the 5.7% year-over-year increase in average total degreed enrollment for the fourth quarter and support our outlook for fiscal 2026. As we look ahead to fiscal year 2026, we're encouraged by strong retention trends and steady demand across our programs. Our continued focus on student success and the learner experience is intended to support sustainable performance and position us for long-term growth.
Becoming a public company marks an important milestone in our transformation, and we believe that we have built a strong foundation to deliver accessible skills-aligned education that empowers working adults to build job-relevant skills and pursue their professional goals. We'll continue to advance our mission through innovation, technology and a deep commitment to helping more adults achieve their educational and professional goals. With that, I'll turn it over to Blair to walk through our financial results and outlook for fiscal year 2026.
Thank you, Chris, and good afternoon, everyone. Before reviewing the numbers, I'd like to note that unless otherwise stated, all comparisons are year-over-year. My comments today will cover our financial results for the fourth quarter and fiscal year 2025, key operating drivers and our outlook for fiscal 2026. In the fourth quarter, we delivered strong results as we finished the fiscal year. Net revenue grew 7.2% year-over-year to $257 million, supported by a 5.7% increase in average total degree enrollment to 79,300 students. Adjusted EBITDA rose 36% to $56.6 million, reflecting improved retention and related flow-through of increased net revenue, which underscores the strength of our operating model. Net income was $17.6 million compared with $10 million a year ago, mainly due to higher revenue and improved operating leverage, partially offset by strategic alternative expense in Q4 2025 associated with our IPO and the termination of a strategic deal we were pursuing prior to the IPO.
Fiscal 2025 was a year of steady top-line growth, expanding profitability and disciplined financial management. For the full year, net revenue increased 6% to $1.01 billion compared with $950 million in fiscal 2024. The increase is primarily driven by growth and average total degree enrollment, which increased 3.7% to 81,900, up from 78,900 the prior year and driven by strong retention. Net income for fiscal 2025 was $135.4 million compared with $115.1 million in the prior year. The increase reflects strong operating performance and continued margin expansion, along with a reduction in lease restructuring expense, partially offset by an increase in expenses associated with our strategic alternatives. Adjusted EBITDA was up 6.5% to $243.9 million compared with $229.1 million in fiscal 2024, reflecting top-line growth and continued efficiency across our operating platform. Adjusted EBITDA margin expanded from 24.1% to 24.2%.
Instructional and support expenses increased from 42.5% of revenue in fiscal 2024 to 43.3% in fiscal 2025, due in part to an increase in financial aid processing costs as we adjust changes in financial aid processing associated with the new financial aid application and transition to disbursing financial aid funds to students one course at a time, which supports improved retention and responsible borrowing. General and administrative expenses declined approximately 120 basis points, reflecting natural operating leverage inherent in the business model. We have a strong balance sheet with no debt and meaningful cash flow that supports continued investment in our students and long-term growth opportunities. As of August 31, 2025, total cash, cash equivalents, restricted cash and marketable securities were $195 million compared with $383 million a year earlier. The decrease primarily reflects $251 million in distributions.
Capital expenditures were $22.5 million or 2.2% of revenue, supporting initiatives that we believe will drive growth and further enhance our platform to support the student journey and operational efficiencies. Subsequent to the end of the fiscal year, we entered into a $100 million senior secured revolving credit facility, which was undrawn at close and currently remains undrawn. The revolver provides additional financial flexibility to support operations and liquidity needs if required. On October 10, 2025, we completed our initial public offering of 4.9 million shares of common stock at $32 per share, including the full exercise of the underwriter's option to purchase additional shares. All shares were sold by existing shareholders, and as a result, the company did not receive any proceeds from the sale. Following our IPO, our capital allocation priorities remain consistent, maintaining flexibility, driving sustainable enrollment growth and investing in initiatives that support student outcomes and enhance operational efficiency.
We continue to focus on organic investments in technology and data capabilities and remain open to selective mission-aligned acquisitions that extend our reach into career-relevant learning. Our strong financial position allows for continued investment in the business while maintaining liquidity and returning capital to shareholders. Consistent with what we stated during the IPO process, we expect to pay quarterly dividends in the annual amount of $0.84 per share, commencing in the second quarter of fiscal 2026 and subject to, in each case, Board approval. Turning to our outlook for fiscal 2026. We are providing guidance for both revenue and adjusted EBITDA. We expect revenue in the range of $1.025 billion to $1.035 billion and adjusted EBITDA between $244 million and $249 million. These expectations reflect consistent top-line growth and disciplined expense management, balanced with ongoing investment to support student outcomes.
In summary, fiscal year 2025 reflected continued progress in strengthening the company's operating and financial foundation. We enter fiscal 2026 with a strong balance sheet, solid cash generation and clear priorities for investment and disciplined capital management.
Questions and answers
Congrats on the strong finish to the year here. I thought maybe just to start with, unpack your expectations for FY '26. You're exiting at 7% growth, 6% enrollment growth, it's been accelerating and a lot of momentum. So what's driving the implied guidance for revenue of 2% to 3%, maybe sort of unpack that? And then what could potentially drive that figure higher or lower?
Thank you for the question, Greg. To provide some context on the revenue trends, we experienced healthy growth of 6% in fiscal '25 compared to fiscal '24, which was faster than the average enrollment increase. This growth was driven by improved student progression and retention in fiscal '25. Additionally, we offered a scholarship of over $5 million in June of fiscal '24, which was not available in fiscal '25. There are also timing differences in our academic calendar that affect enrollment numbers year-to-year due to the multiple tracks and starts for undergraduate programs, leading to variations in cohort sizes. We observed a higher number of students participating in our risk-free period in fiscal '25, a program designed for students with characteristics associated with lower success rates, allowing them to acclimate to the online learning environment for four weeks. We noted larger volumes of students, many of whom had previously maximized their financial aid and did not possess prior college credits, moving through this risk-free period.
The unusual enrollment activity we experienced in the summer of '24 was tied to issues in the Department of Education's financial aid processing. Some students submitted financial aid forms with inaccuracies to gain funds for enrollment. We have implemented robust controls to monitor and manage these activities effectively. Regarding retention, while we improved overall in fiscal '25, we did see a higher percentage of students who did not persist beyond their initial courses. This impacted our revenue per average total degreed enrollment. Looking ahead to fiscal '26, our outlook reflects our status as a new public company, targeting achievable goals. The students we are attracting now have profiles that suggest a higher likelihood of success, including those with transfer credits, and we are expanding our B2B channel. We anticipate a reversal in revenue trends in fiscal '26, thanks to the strong applicant demand we've seen in fiscal '25, despite earlier challenges with enrollment activity.
Our decision to enhance controls at the application stage has improved our enrollment productivity, allowing us to serve students more effectively. This, combined with our high retention rates, is fueling the positive outlook for fiscal '26.
I was wondering if you could just drill down into your total degree enrollment by different verticals. And I'm specifically interested in health care and nursing, I know some of the other companies have talked about some of the RN to BSN programs have gotten more competitive. Do you play there? Can you give us any color on that vertical specifically? That would be great.
Sure. We're experiencing solid growth in our nursing programs, which represent a smaller segment of our total degreed enrollment. This remains an area of opportunity for us with positive growth trends. Currently, we are expanding in most of our programs. Additionally, we're noticing significant growth linked to B2B initiatives, which is boosting our business, IT, health care, and nursing segments. Regarding our degree programs, the majority are in business and IT, where we are also seeing growth. Health care presents a valuable opportunity for us, and we continue to observe robust growth trends in that sector.
I was just hoping you could give a bit more detail on what you're assuming for enrollment growth and revenue per student underpinning that '26 revenue outlook?
Yes. Regarding revenue growth, the guidance we're providing indicates that I do expect some reversal of the previously high revenue per student trends compared to earlier fiscal years. In fiscal '25, we experienced some growth in revenue per student primarily from students who only completed their initial courses. This reversal will impact the revenue per average total degreed enrollment, which will lower that metric in fiscal '26. We anticipate normalization by the end of the year. Therefore, in the later part of the year, especially in Q4, we expect to start seeing trends that align more closely with our expectations for average total degreed enrollment growth and revenue. Looking ahead, we provided guidance during the IPO process that we're expecting mid-single digits in revenue growth, and we remain confident in that outlook. Yes, I appreciate your question because we are facing some challenges related to establishing our infrastructure and unusual enrollment activity.
This has impacted us and resulted in lost opportunities, along with productivity challenges due to lower marketing efficiency and enrollment levels. We are already seeing improvements in both areas in Q4 and anticipate that this trend will continue into fiscal '26. However, we did experience some revenue loss from students who did not continue beyond their initial courses, which could be considered a headwind. I believe this is a manageable challenge, as we are attracting a higher-quality student demographic. While we are not providing quarterly guidance, I can say that these challenges were prevalent during Q2 and Q3 of last year, which leads us to expect a return to expected trends based on our fundamentals in Q4. I want to emphasize that we are witnessing healthy demand for new students and strong student retention. The fundamentals driving this year are robust, which gives us confidence in the outlook we've shared.
I wanted to go back to the impact of suspicious activity controls enrollments. Can you quantify how much of the slower enrollment growth in fiscal '26 is due to less suspicious activity compared to, say, friction and legitimate enrollments? And then maybe talk about what gives you confidence that unusual enrollment activity won't spike again the following year and then force you to put some more controls in place that could impact enrollment?
Thank you for your question, George. It's challenging to provide specific numbers on this. To give you an overview of our controls, we use advanced algorithms that have shown to be effective at identifying potential risks related to suspicious activity. We've gathered extensive data and refined these algorithms to achieve a high accuracy level. When we reach certain thresholds, we immediately halt the enrollment of any student showing signs of suspicious activity. While we can't always determine if a flagged student is genuinely problematic, we prioritize having controls in place to manage these situations. Earlier this year, our controls were situated further along in the enrollment process, which led to interactions between enrolled students and our representatives, resulting in productivity challenges and lower conversion rates. This inefficiency in marketing spend occurred because our enrollment representatives struggled to assist well-intentioned students effectively.
However, after moving these controls to the beginning of the application process in Q4, we observed significant improvements in productivity and conversion rates, as there was minimal suspicious activity at this stage. While we did experience some friction when implementing controls that inadvertently affected some well-intended students, we've been refining this process and feel more confident now than we did in Q4. Regarding future concerns about unusual enrollment activity, there is indeed documented evidence of such occurrences in our industry. We've built the necessary capabilities to address this issue and continuously monitor and update our algorithms to catch these activities early and enhance our deterrent measures. Our process has shown consistent effectiveness since we implemented it at the end of Q3. Lastly, it's important to note that the initial problem stemmed from shortcomings in controls and identity verification with the Department of Education, which they publicly acknowledged earlier this summer.
After meeting with them in September, we're confident they will establish robust processes with their upcoming FAFSA system, which should significantly mitigate this issue across the higher education sector. This engagement has further strengthened our confidence in our control systems.
My question is regarding technology investment. So you talked about during the IPO process, the $500 million investment that was made into the technology platform. I'm curious what sort of capacity you have under the current platform? You've grown average enrollments from 70,000 to 80,000 over the last 2 to 3 years. Curious if you have the capability to expand enrollment another 10,000 just as a placeholder number without significant tech investment or what the expectation for investment is in the future to get that next 10,000?
Yes, thank you for the question. We have significant capacity on our platform to accommodate growth well beyond an additional 10,000 students. The investments we've made allow us to effectively manage that scale. Our platform is cloud-first and data-driven, and we’re particularly excited about the advancements in our AI initiatives. As we discussed during our IPO, we've been incorporating AI and machine learning for several years, which has led to increased traffic to our website from our branding and marketing efforts. This provides numerous opportunities to convert prospective students into actual students and then personalize their experiences using data. We are currently exploring powerful use cases in the realm of generative AI and Agentic AI, which will help us enhance our capacity. Although we are in the early stages, our technology investments have positioned us well, and we have many practical applications that we believe will improve efficiency, student outcomes, and support our growth. I wanted to emphasize that this is a key area of focus for us, and we are very enthusiastic about it.
My question is about policy. Can you discuss the announcements on priorities from the Department of Education earlier this month and what investors should know regarding accreditation reform or other relevant topics? Additionally, have there been any surprises regarding how the changes in the One Big Beautiful Bill Act are being implemented, and what the implications of new laws might be for the university?
Thanks, Rob. Great question. Nothing has changed in terms of updates in this area. There were some announcements this week regarding the potential direction of the Department of Education and other agencies, but that was already anticipated when we went public. The main point is that there are no significant changes. In terms of the One Big Beautiful Bill, at a high level, we previously discussed various elements of that bill, including the Grad loan limits, the elimination of the PLUS loan, and certain limitations on Pell grants. We did not expect and still do not expect these to impact our students. There is an earnings threshold that we've mentioned that could affect some of our programs. However, based on what we know today, we do not foresee any material adverse impact, and we believe we are well-positioned to manage any challenges that may arise. So, again, nothing has changed there.
What remains is the negotiated rule-making process with the Department of Education. They have completed the first phase, during which some loan limits were discussed, all of which aligned with our expectations. There's nothing new to report. The department will address the earnings threshold and other issues in the upcoming sessions in December and January, and we are eager to learn more. However, we feel optimistic about our ongoing interactions with the department and the overall process. Therefore, there is nothing new that raises concerns for us. We are generally comfortable with our understanding of the Department of Education and the Big Beautiful Bill. Recently, there was a letter from Secretary McMahon discussing the creation of partnerships across agencies. The main takeaway is that this administration is seeking to reduce the presence of the Department of Education by potentially shifting some of its functions to other agencies.
From our experience, the department has been responsive, and we have maintained a productive partnership with the post-secondary unit. The department has helped us considerably with our 6-year program participation agreement. Regardless of whether there's a transition or a partnership, we do not expect any of the discussions in the media to affect us. We have a similar outlook regarding loans and grants. In fact, we believe the department has made investments in technological enhancements and processes. We recently met with them to discuss changes related to the FAFSA, and we view that process positively. If those resources are relocated, we do not anticipate any implications for our university. So, to summarize, nothing has changed, Rob. Okay. Thank you, everyone. Fiscal year 2025 marked another year of meaningful progress across the university. We're excited about the next chapter of our journey as we continue to transform lives through accessible, high-quality education.
I want to close by thanking our faculty and our entire team for their unwavering commitment to our mission and for keeping our students at the center of everything we do, and thank you all for joining us today.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.