Share-based Compensation
The following details total share-based compensation during the respective periods:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30, |
|
($ in thousands) |
|
2025 |
|
|
2024 |
|
Instructional and support |
|
$ |
6,761 |
|
|
$ |
222 |
|
General and administrative |
|
|
22,738 |
|
|
|
424 |
|
Share-based compensation |
|
$ |
29,499 |
|
|
$ |
646 |
|
Note 13. Commitments and Contingencies
Guarantees
We have indemnified officers and directors and certain affiliates from losses and other amounts arising from certain events or occurrences. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have liability insurance that mitigates our exposure and enables us to recover a portion of any future amounts paid. The fair value of these indemnification agreements, if any, cannot be estimated.
Sponsorship Rights Agreement
In August 2018, PEOC entered into an agreement for sponsorship rights on a stadium in Glendale, Arizona, which is the home of the Arizona Cardinals football team in the National Football League. The agreement term is in effect until 2030 with options to extend. Pursuant to the agreement, PEOC was required to pay $1.5 million for the initial contract year, which increases 3% per year until 2030. As of November 30, 2025, our remaining contractual obligation pursuant to the agreement was approximately $11 million.
Letters of Credit
We had a $32 million outstanding cash collateralized letter of credit as of November 30, 2025, which supports a sublease for a facility we have exited.
Surety Bonds
Our insurers issue surety bonds that are required by various states where we operate, or that are required for other purposes. We are obligated to reimburse our insurers for any surety bonds that are paid. As of November 30, 2025, the face amount of these surety bonds was less than $1 million.
Litigation and Other Matters
We are subject to various claims and contingencies that arise from time to time in the ordinary course of business, including those related to regulation, litigation, business transactions, employee-related matters and taxes, among others. We do not believe any of these are material for separate disclosure and we do not believe any of these, individually or in the aggregate, will have a material effect on our consolidated financial position, results of operations or cash flows.
The following is a description of pending litigation, settlements, and other proceedings that fall outside the scope of ordinary and routine litigation incidental to our business.
Cybersecurity Incident
We experienced a cybersecurity incident involving the Oracle E-Business Suite software platform (“Oracle EBS”). We are one of a number of organizations, including other academic institutions, from which an unauthorized third-party exfiltrated data by exploiting a previously unknown software vulnerability in Oracle EBS. The incident did not impact our business operations or student programming.
Upon detecting the incident on November 21, 2025, we promptly took steps to investigate and respond with the assistance of leading third-party cybersecurity firms. While the investigation remains ongoing, we believe that the software vulnerability was used in August 2025 to copy certain data maintained in our Oracle EBS environment. We promptly installed Oracle EBS software patches to
remediate the vulnerability following their release in October 2025. We believe that certain personal information, including names and contact information, dates of birth, social security numbers, and bank account and routing numbers, with respect to numerous individuals was accessed without authorization. To our knowledge, the unauthorized third-party has not publicly disseminated the data. We are continuing to review the impacted data and are providing the required notifications to affected parties and applicable regulatory entities.
In connection with this cybersecurity incident, we are currently aware of the filing of a number of putative class action lawsuits in which the University is either a single defendant or co-defendant with Oracle, or co-defendant with Oracle and other companies. On January 5, 2026, some of these lawsuits were consolidated into a single matter, along with other lawsuits against unrelated defendants which stem from the same Oracle EBS software vulnerability discussed above. This consolidated putative class action is titled In re Oracle Corporation Data Breach Litigation, pending in federal court in the Western District of Texas (Case No. 1:25-cv-01805).
The complaints generally allege that the University and other co-defendants failed to protect the plaintiffs’ confidential information in violation of various federal and/or state laws.
Because of the many questions of fact and law that may arise, the outcome of these legal proceedings are uncertain at this point. Based on information available to us at present, we cannot reasonably estimate a range of loss, if any, for these actions and, accordingly, we have not accrued any liability associated with these actions.
During the three months ended November 30, 2025, we recorded $4.5 million of expense associated with this cybersecurity incident that is included in strategic alternatives, restructuring and other on our condensed consolidated statements of income. The expense principally represents costs to notify the affected parties, fees from third-party cybersecurity firms, and legal fees related to the incident response. Although we continue to investigate this event and expect to incur additional related expenses in future periods, we maintain a comprehensive cybersecurity insurance policy, which covers costs associated with the incident response, investigatory and remediation expense, potential regulatory action, business interruption, and costs associated with investigating, defending, and resolving legal proceedings related to the incident, subject to deductibles, exclusions and limits.
Class Action Lawsuit
On April 1, 2025, Janielle Dawson filed a class action complaint against the University in the United States District Court for the Northern District of Illinois. The complaint alleges that the University violated the Video Privacy Protection Act, Electronic Communications and Privacy Act, and the Illinois Eavesdropping Act by integrating third-party tracking technology in its website and thereby disclosing to third parties its users’ personally identifiable and other protected information. The complaint seeks to recover damages on behalf of plaintiff and other members of the class.
Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on information available to us at present, we cannot reasonably estimate a range of loss for this action and, accordingly, we have not accrued any liability associated with this action.
Note 14. Regulatory Matters
Borrower Defense to Repayment Claims
Under the Higher Education Act, the Department of Education’s regulations specify acts or omissions of a school that a student loan borrower may assert as a defense to repayment of a federal student loan (referred to as a BDR claim) and thereby seek to obtain a discharge and refund of such loan. Under the BDR Rules, the Department of Education has indicated that it believes it may also assert such a claim on behalf of a student borrower. Additionally, the Department of Education may initiate a recoupment proceeding against a school to collect loan amounts that are discharged or refunded as the result of BDR claims. The BDR Rules have been significantly revised in recent years. Currently, a complex framework of rules applies different loan relief and recoupment standards and procedures based upon the date that the loan in question was first disbursed. Additionally, the BDR Rules are subject to various pending litigation that increases related complexity and uncertainty.
The Department of Education began sending borrower defense applications to the University in June 2020. As part of the fact-finding process, the Department sends individual student applications to the University and allows the University the opportunity to submit responses to the borrower defense applications. The University has submitted, or will submit within the timeframe prescribed by the Department, initial substantive responses to these applications to the Department.
In September 2023, the Department of Education announced that it had approved more than 1,200 BDR claims and discharged nearly $37 million federal student loans from borrowers who made claims regarding the University’s “Let’s Get to Work” ad campaign,
which ran from 2012 to 2014 based on its announced finding that the University substantially misrepresented its relationships with outside companies in the ad campaign. The Department of Education further indicated its intent to commence a recoupment effort against the University for approximately $37 million in discharged loans, but the Department of Education has not yet commenced any such action. While the discharged loans related to these BDR claims appear also to have been subject to automatic discharge under the terms of BDR-related litigation, the settlement of which itself could not serve as the basis of a recoupment action by the Department of Education under its stated position, it remains possible that the Department of Education could attempt to seek recoupment of such discharged payments in the future, and we cannot predict the timing or scale of such recoupment efforts if pursued.
Because of the many questions of fact and law that may arise, the outcome of BDR claims is uncertain at this point. Based on the information available to us at present, we cannot estimate a reasonably possible range of loss for BDR claims and, accordingly, we have not accrued any liability associated with such claims.
Note 15. Segment Reporting
We have one operating and reportable segment, the University, which represents all of our consolidated net revenue in the three months ended November 30, 2025 and 2024. Our chief operating decision maker (“CODM”), Christopher Lynne, Chief Executive Officer of the Company, currently evaluates performance and manages our operations at the consolidated level.
Our CODM evaluates performance for the segment and decides how to allocate resources and capital based on profitability metrics, including operating income, that are reported on our condensed consolidated statements of income. Our CODM considers variances in actual results compared to prior periods, and variances in actual results compared to budgets and forecasts for this profit measure when making decisions about resource allocation and assessing performance. Total asset information is evaluated at the consolidated level and, as a result, such information has not been presented below.
No individual customer accounted for more than 10% of our consolidated net revenue in the three months ended November 30, 2025 and 2024.
The following provides information on net revenue, significant expenses and net income for our single reportable segment during the respective periods:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30, |
|
($ in thousands) |
|
2025 |
|
|
2024 |
|
Net revenue |
|
$ |
262,027 |
|
|
$ |
254,692 |
|
Costs and expenses: |
|
|
|
|
|
|
Compensation and related costs(1) |
|
|
133,300 |
|
|
|
101,637 |
|
Advertising |
|
|
43,060 |
|
|
|
41,147 |
|
Provision for credit losses on accounts receivable |
|
|
9,579 |
|
|
|
11,281 |
|
Strategic alternatives, restructuring and other |
|
|
14,628 |
|
|
|
4,946 |
|
Other(2) |
|
|
35,866 |
|
|
|
36,013 |
|
Total costs and expenses |
|
|
236,433 |
|
|
|
195,024 |
|
Operating income |
|
|
25,594 |
|
|
|
59,668 |
|
Interest income |
|
|
1,761 |
|
|
|
3,858 |
|
Interest expense |
|
|
(215 |
) |
|
|
(114 |
) |
Income before income taxes |
|
|
27,140 |
|
|
|
63,412 |
|
Provision for income taxes |
|
|
11,662 |
|
|
|
16,294 |
|
Net income |
|
$ |
15,478 |
|
|
$ |
47,118 |
|
(1)The increase in compensation and related costs during the three months ended November 30, 2025 compared to the three months ended November 30, 2024 was principally due to share-based compensation resulting from our IPO. See Note 12. Share-Based Awards for further information.
(2)Other principally consists of costs related to the delivery and administration of our educational programs, depreciation and amortization, information technology infrastructure costs, legal and professional fees, and other general and administrative costs.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “outlook,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. The forward-looking statements are contained principally in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and include, among other things, statements relating to: (i) our strategy, outlook and growth prospects; (ii) our operational and financial targets and dividend policy; (iii) general economic trends and trends in the industry and markets; and (iv) the competitive environment in which we operate.
These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Important factors that could cause our results to vary from expectations include, but are not limited to:
•our ability to comply with the extensive regulatory requirements for our business, and the impact of a failure to comply with applicable regulations or regulatory requirements, standards or policies, which could subject us to significant monetary liabilities, fines and penalties, including loss of or limitations upon access to U.S. federal student loans, grants and military program benefits for our students, and otherwise have a material adverse impact on our business;
•shifts in higher education policy at the federal and state levels;
•our ability to maintain our institutional accreditation and our eligibility to participate in Title IV programs;
•our ability to enroll and retain students;
•our ability to adapt to changing market needs or new technologies;
•our ability to maintain existing, and develop additional, business-to-business, or B2B, relationships with employers;
•our ability to attract or retain a qualified senior management team and qualified faculty members;
•the impact of compliance reviews, claims, or litigation that government agencies, regulatory agencies, and third parties may conduct, bring or initiate against us based on alleged violations of the extensive regulatory requirements applicable to us;
•our ability to establish, maintain, protect and enforce our intellectual property and proprietary rights and prevent third parties from making unauthorized use of such rights;
•liability associated with any failure to comply with data privacy and data security laws and the unauthorized access, duplication, distribution or other use of confidential or personal information, including liability and costs associated with the cybersecurity incident we identified in November 2025;
•additional tax liabilities;
•our ability to pay dividends on our common stock or the timing or amount of any such dividends; and
•other risk factors included under “Risk Factors” in our Annual Report on Form 10-K.
These forward-looking statements are based on assumptions and subject to risks and uncertainties. Given these uncertainties, undue reliance should not be placed on these forward-looking statements. Except as required by law, we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise. We anticipate that subsequent events and developments will cause our views to change. This Quarterly Report on Form 10-Q and the documents filed as exhibits hereto should be read completely and with the understanding that our actual future results may be materially different from what we expect. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may undertake. We qualify all of our forward-looking statements by these cautionary statements.
Overview
We, through our subsidiary The University of Phoenix, Inc., are a pioneer of online higher education for working adults in the United States. Since our founding in 1976, the University has been a mission-driven organization focused on offering a distinctive and affordable online higher education experience that is customized for working adults who did not fit the traditional 18- to 22-year-old campus-based student model. The University has been accredited since 1978 by the Higher Learning Commission (“HLC”), an institutional accrediting agency recognized by the Department of Education. In our nearly five decades of operation, we have served more than 1.1 million alumni (including those who have completed non-degree certificates) and conferred approximately 1.3 million degrees.
Initial Public Offering
On October 10, 2025, we completed an IPO of 4.9 million shares of common stock at a price of $32.00 per share, which included 0.6 million shares sold to the underwriters pursuant to their option to purchase additional shares. The shares were offered by certain of the Company’s existing shareholders and, accordingly, we did not receive any proceeds from the sale of shares associated with the offering.
Factors Affecting Results of Operations
We believe our market position provides us with a significant opportunity to drive sustainable growth in the future. The following factors, among others described herein, have historically affected, and we expect in the future will similarly affect, our performance:
Enrollment. The net revenue we generate in a given period largely depends on the total number of courses taken by the enrolled student population and the price per course. As part of our focus on affordable and accessible tuition, we have not raised tuition rates since 2018. In addition, in 2018, we implemented our Tuition Price Guarantee program under which a student’s tuition price per course is frozen at the tuition rates in effect at his or her enrollment date, thereby giving each of our students certainty in the price of tuition through the duration of their programs even if rates are subsequently increased for students who enroll at later dates. Our student retention rates, calculated as (i) the number of confirmed undergraduate students who both started a degree or non-degree certificate program and posted attendance in a course within such program as of an applicable date, divided by (ii) the number of confirmed undergraduate students who started such a program, expressed as a percentage, have increased from 59.7% for the 2016/2017 cohort to 71.5% for the 2023/2024 cohort (our most recent completed cohort for retention rate purposes). This retention increase is a key factor driving the growth in Average Total Degreed Enrollment in recent years, including a 4.1% increase in the three months ended November 30, 2025 as compared to the prior year period. We have invested and continue to invest in many areas of our business that we expect will further improve enrollment, retention and graduation rates, which drive sustainable growth. However, enrollment and retention of students at the University is impacted by many of the risks described in Item 1A, “Risk Factors” of our 2025 Annual Report on Form 10-K, many of which are beyond our control.
Career-Relevant Education and Employer Relationships. Our career-oriented programs and learning platform position us for continued growth in the corporate-sponsored training and education market. Enrollment through our employer relationships represented approximately 34% of our Average Total Degreed Enrollment in the three months ended November 30, 2025. This represents a valuable opportunity to diversify our student population and net revenue, drive growth and reduce acquisition costs as these students generally have higher retention and graduation rates. In addition, we have begun to expand discussions with employers beyond our degree offerings to include our comprehensive suite of talent development solutions and professional development offerings. While the development of our talent development solutions is in the early stages, our ability to offer these solutions has broadened our relationships with key employers and provides an opportunity for growth.
Regulatory Requirements. Our operations are subject to extensive U.S. federal and state regulation applicable to providers of post-secondary education who participate in Title IV programs. Failure to comply with applicable regulatory requirements, standards or policies could subject us to significant monetary liabilities, fines and penalties, including loss of or limitations upon access to U.S. federal student loans and grants for our students. Any actions that limit our participation in Title IV programs or the amount of student financial aid for which our students are eligible would materially impact our student enrollments and profitability and could impact the continued viability of our business as currently conducted. See Item 1A, “Risk Factors” of our Annual Report on Form 10-K for a detailed discussion of regulatory requirements and related risks.
Cost Structure. Our ability to grow profitably depends on our ability to manage our cost structure. Our margin expansion over recent years has been largely derived from the operating leverage resulting from the increase in net revenue relative to our costs that are more fixed in nature and our exit from all but one of our ground campuses. We intend to augment this historical operating leverage through additional strategic and operational initiatives to enhance support for students in a more efficient manner. We continue to invest in optimization and we expect our investments will reduce friction points and increase efficiencies throughout the University.
Seasonality. Although the University’s non-term academic model, encompassing a series of courses taken consecutively over the length of the program, reduces seasonal enrollment fluctuations, we have historically experienced, and expect to continue to experience, lower net revenue in our second fiscal quarter (December through February) compared to other quarters due to the University’s holiday breaks when no related net revenue is recognized. While our operating costs generally do not fluctuate significantly on a quarterly basis, we have historically experienced, and expect to continue to experience, increased marketing expense in our second and fourth fiscal quarters due to course starts that occur during traditional back-to-school seasons.
Key Performance Metrics
We review a number of operating and financial metrics, including the key performance metrics presented in the table below, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30, |
|
|
|
2025 |
|
|
2024 |
|
(Enrollment statistics rounded to the nearest hundred; dollars in thousands) |
|
|
|
|
|
|
Average Total Degreed Enrollment |
|
|
85,600 |
|
|
|
82,200 |
|
Net income attributable to Phoenix Education Partners, Inc. |
|
$ |
15,454 |
|
|
$ |
46,416 |
|
Net income attributable to Phoenix Education Partners, Inc. margin |
|
|
5.9 |
% |
|
|
18.2 |
% |
Adjusted EBITDA |
|
$ |
75,177 |
|
|
$ |
70,140 |
|
Adjusted EBITDA margin |
|
|
28.7 |
% |
|
|
27.5 |
% |
Average Total Degreed Enrollment. Enrollment is the primary driver of our net revenue and a key non-financial metric that helps compare our performance on a consistent basis across time periods. Additionally, enrollment is a reflection of our ability to retain continuing students and enroll new students, which are key components of our growth strategy. Enrollment measures in our industry do not have a standardized meaning, and other companies in our industry may calculate measures of enrollment differently than we do.
Substantially all of our net revenue is generated from student enrollment in tuition-bearing degree programs encompassing a series of courses (e.g., most often five-week courses) taken consecutively over the length of the program. Over comparative periods, Total Degreed Enrollment generally increases as new students attend a credit-bearing course or continuing students return to the University, which increases are generally offset by graduations or continuing students not attending a credit-bearing course (e.g., by withdrawing from the University). We define “Total Degreed Enrollment” as the number of confirmed students (both new and continuing) enrolled in credit-bearing courses who post attendance at least one time during a calendar month (even if they withdraw later in the same month), excluding students who graduated as of the end of such month. Average Total Degreed Enrollment for the periods shown above represents the aggregate of monthly Total Degreed Enrollment during such period divided by the number of months in the period. For example, Average Total Degreed Enrollment for the three months ended November 30, 2025 is calculated as the aggregate Total Degreed Enrollment for the three months from September 2025 through November 2025 divided by three.
Net income attributable to Phoenix Education Partners, net income attributable to Phoenix Education Partners margin, adjusted EBITDA and adjusted EBITDA margin. We believe these items are primary indicators of our operating performance because they are measures of profitability and assist with comparing our performance across periods and evaluating the effectiveness of our business strategies. Additionally, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures that allow us to evaluate our profitability on a consistent basis across periods by excluding items that management and the board of directors do not believe are indicative of our core operating performance. We use adjusted EBITDA and adjusted EBITDA margin to supplement GAAP measures of performance and to compare our performance against peer companies utilizing similar measures. See “—Non-GAAP Financial Measures and Reconciliations” for the definitions of adjusted EBITDA and adjusted EBITDA margin, a reconciliation of net income attributable to Phoenix Education Partners to adjusted EBITDA and the calculation of adjusted EBITDA margin. We calculate net income attributable to Phoenix Education Partners margin as net income attributable to Phoenix Education Partners divided by net revenue, expressed as a percentage.
Results of Operations
Three Months Ended November 30, 2025 Compared to the Three Months Ended November 30, 2024
The following details our consolidated results of operations during the respective periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
|
|
|
|
|
|
% of Net Revenue |
|
|
% Change |
|
($ in thousands) |
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
|
2025 versus 2024 |
|
Net revenue |
|
$ |
262,027 |
|
|
$ |
254,692 |
|
|
|
|
|
|
|
|
|
2.9 |
% |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instructional and support |
|
|
115,248 |
|
|
|
108,123 |
|
|
|
44.0 |
% |
|
|
42.5 |
% |
|
|
6.6 |
% |
General and administrative |
|
|
106,557 |
|
|
|
81,955 |
|
|
|
40.6 |
% |
|
|
32.2 |
% |
|
|
30.0 |
% |
Strategic alternatives, restructuring and other |
|
|
14,628 |
|
|
|
4,946 |
|
|
|
5.6 |
% |
|
|
1.9 |
% |
|
* |
|
Total costs and expenses |
|
|
236,433 |
|
|
|
195,024 |
|
|
|
90.2 |
% |
|
|
76.6 |
% |
|
|
21.2 |
% |
Operating income |
|
|
25,594 |
|
|
|
59,668 |
|
|
|
9.8 |
% |
|
|
23.4 |
% |
|
|
(57.1 |
)% |
Interest income |
|
|
1,761 |
|
|
|
3,858 |
|
|
|
0.7 |
% |
|
|
1.5 |
% |
|
|
(54.4 |
)% |
Interest expense |
|
|
(215 |
) |
|
|
(114 |
) |
|
|
(0.1 |
)% |
|
|
— |
|
|
|
88.6 |
% |
Income before income taxes |
|
|
27,140 |
|
|
|
63,412 |
|
|
|
10.4 |
% |
|
|
24.9 |
% |
|
|
(57.2 |
)% |
Provision for income taxes |
|
|
11,662 |
|
|
|
16,294 |
|
|
|
4.5 |
% |
|
|
6.4 |
% |
|
|
(28.4 |
)% |
Net income |
|
|
15,478 |
|
|
|
47,118 |
|
|
|
5.9 |
% |
|
|
18.5 |
% |
|
|
(67.2 |
)% |
Net income attributable to noncontrolling interests |
|
|
(24 |
) |
|
|
(702 |
) |
|
|
— |
|
|
|
(0.3 |
)% |
|
|
(96.6 |
)% |
Net income attributable to Phoenix Education Partners, Inc. |
|
$ |
15,454 |
|
|
$ |
46,416 |
|
|
|
5.9 |
% |
|
|
18.2 |
% |
|
|
(66.7 |
)% |
*Not meaningful
Net revenue
Net revenue increased $7.3 million, or 2.9%, to $262.0 million in the three months ended November 30, 2025 from $254.7 million in the prior year period. Since 2018, under our Tuition Price Guarantee, each student’s tuition price per course is frozen at the tuition rates in effect at his or her enrollment date. The increase in net revenue was principally attributable to enrollment growth, as measured by Average Total Degreed Enrollment, which increased 4.1% in the three months ended November 30, 2025 as compared to the prior year period. The increase in Average Total Degreed Enrollment resulted from new student growth and improved student retention. The increase in net revenue was partially offset by an increase in discounts during the three months ended November 30, 2025 compared to the prior year period mainly attributable to a higher percentage of our Average Total Degreed Enrollment through employer relationships.
Instructional and support
Instructional and support increased $7.1 million, or 6.6%, to $115.2 million in the three months ended November 30, 2025 from $108.1 million in the prior year period. This resulted in such expenses increasing as a percentage of net revenue by 1.5%. The increase in instructional and support was principally attributable to a $6.5 million increase in share-based compensation expense resulting from our IPO (see Note 1. Nature of Operations and Significant Accounting Policies and Note 12. Share-Based Awards to our condensed consolidated financial statements) and variable costs associated with the increase in net revenue, including faculty wages and curriculum expense that generally fluctuate with changes in enrollment. The increase in instructional and support was partially offset by decreases during the three months ended November 30, 2025 in credit losses on accounts receivable and financial aid processing costs, which were higher in the prior year period as we addressed financial aid processing changes following the Department of Education’s implementation of an updated financial aid application form and transitioned to disbursing financial aid by course (see further disclosure below in “Liquidity and Capital Resources”).
General and administrative
General and administrative increased $24.6 million, or 30.0%, to $106.6 million in the three months ended November 30, 2025 from $82.0 million in the prior year period. This resulted in such expenses increasing as a percentage of net revenue by 8.4%. The increase in general and administrative was principally attributable to a $22.3 million increase in share-based compensation expense resulting from our IPO (see Note 1. Nature of Operations and Significant Accounting Policies and Note 12. Share-Based Awards to our
condensed consolidated financial statements) and investments we have made in our marketing function, including increased advertising, to support our growth.
Strategic alternatives, restructuring and other
Strategic alternatives, restructuring and other includes the following during the respective periods:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
November 30, |
|
($ in thousands) |
|
2025 |
|
|
2024 |
|
Strategic alternatives |
|
$ |
4,921 |
|
|
$ |
875 |
|
Cybersecurity incident |
|
|
4,500 |
|
|
|
— |
|
Lease restructuring, net |
|
|
2,020 |
|
|
|
2,027 |
|
Other |
|
|
3,187 |
|
|
|
2,044 |
|
Strategic alternatives, restructuring and other |
|
$ |
14,628 |
|
|
$ |
4,946 |
|
Strategic alternatives, restructuring and other increased $9.7 million, to $14.6 million in the three months ended November 30, 2025 from $4.9 million in the prior year period. This increase was principally due to costs associated with our IPO and a cybersecurity incident (see Note 13. Commitments and Contingencies to our condensed consolidated financial statements) in the three months ended November 30, 2025.
Interest income
Interest income decreased $2.1 million, or 54.4%, to $1.8 million in the three months ended November 30, 2025 from $3.9 million in the prior year period. This decrease was principally attributable to a decrease in average cash and cash equivalents and marketable securities held and a decrease in interest rate yields.
Interest expense
We incurred insignificant interest expense during the three months ended November 30, 2025 and 2024.
Provision for income taxes
Provision for income taxes decreased $4.6 million, or 28.4%, to $11.7 million in the three months ended November 30, 2025 from $16.3 million in the prior year period.
Our effective income tax rate in the three months ended November 30, 2025 was 43.0% compared to 25.7% in the prior year period. The increase in our effective income tax rate was primarily due to the completion of our IPO, which resulted in certain IPO and executive compensation costs becoming nondeductible.
Non-GAAP Financial Measures and Reconciliations
To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we also provide the below non-GAAP financial measures:
•Adjusted net income attributable to Phoenix Education Partners. We define adjusted net income attributable to Phoenix Education Partners as net income attributable to Phoenix Education Partners, adjusted to eliminate the impact of restructuring lease expense, strategic alternatives expense, cybersecurity incident expense, impairment charges and asset disposal losses, litigation charges and regulatory expense, non-cash share-based compensation expense, certain tax effects and other items set forth in the applicable table below.1
•Adjusted EBITDA. We define adjusted EBITDA as net income attributable to Phoenix Education Partners, adjusted to eliminate the impact of restructuring lease expense, strategic alternatives expense, cybersecurity incident expense, impairment charges and asset disposal losses, litigation charges and regulatory expense, non-cash share-based compensation
1 For our first quarter of 2026, we changed our definition of this measure to start with “Net income attributable to Phoenix Education Partners” instead of “Net income” and began excluding expenses incurred related to our cybersecurity incident, which we do not believe are representative of our ongoing operations. We have retrospectively changed this measure for all periods presented to conform with our new definition.
expense, depreciation and amortization, interest income, net of interest expense, provision for income taxes and certain other items set forth in the applicable table below.1
•Adjusted EBITDA margin. We define adjusted EBITDA margin as adjusted EBITDA divided by net revenue, expressed as a percentage.
Adjusted net income attributable to Phoenix Education Partners, adjusted EBITDA and adjusted EBITDA margin are non-GAAP measures and are included as supplemental disclosures because we believe they are useful indicators of our operating performance. Derivations of net income and EBITDA are well recognized performance measurements in the education industry that are frequently used by our management, as well as by investors, securities analysts and other interested parties to compare the operating performance of companies in our industry. We believe these non-GAAP measures help compare our performance on a consistent basis across periods and provide an additional analytical tool to assist with identifying underlying trends in our results of operations. While we believe that these non-GAAP measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for the comparable GAAP measures.
Adjusted net income attributable to Phoenix Education Partners, adjusted EBITDA and adjusted EBITDA margin have limitations as analytical tools. Additionally, other companies in our industry may calculate such measures differently than we do, limiting each measure’s usefulness as a comparative measure. Some of these limitations are:
(i)they do not reflect costs or cash outlays for capital expenditures or contractual commitments;
(ii)they do not reflect changes in, or cash requirements for, our working capital needs;
(iii)they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; and
(iv)adjusted EBITDA does not reflect our tax expense or the cash requirements to pay our taxes.
Because of these limitations, adjusted net income attributable to Phoenix Education Partners, adjusted EBITDA and adjusted EBITDA margin should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. You are cautioned not to place undue reliance on this information.
The following tables present reconciliations of net income attributable to Phoenix Education Partners to adjusted net income attributable to Phoenix Education Partners and net income attributable to Phoenix Education Partners to adjusted EBITDA and adjusted EBITDA margin during the respective periods:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30, |
|
($ in thousands) |
|
2025 |
|
|
2024 |
|
Net income attributable to Phoenix Education Partners, Inc. |
|
$ |
15,454 |
|
|
$ |
46,416 |
|
Special items and share-based compensation: |
|
|
|
|
|
|
Restructuring lease expense(a) |
|
|
2,020 |
|
|
|
2,027 |
|
Strategic alternatives expense(b) |
|
|
4,921 |
|
|
|
875 |
|
Cybersecurity incident expense(c) |
|
|
4,500 |
|
|
|
— |
|
Impairment charges and asset disposal losses(d) |
|
|
20 |
|
|
|
34 |
|
Litigation charges and regulatory expense(e) |
|
|
1,203 |
|
|
|
1,205 |
|
Non-cash share-based compensation expense(f) |
|
|
29,499 |
|
|
|
646 |
|
Other(g) |
|
|
1,964 |
|
|
|
1,195 |
|
Income tax effects of special items and share-based compensation(h) |
|
|
(5,933 |
) |
|
|
(1,468 |
) |
Adjusted net income attributable to Phoenix Education Partners, Inc. |
|
$ |
53,648 |
|
|
$ |
50,930 |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30, |
|
($ in thousands) |
|
2025 |
|
|
2024 |
|
Net income attributable to Phoenix Education Partners, Inc. |
|
$ |
15,454 |
|
|
$ |
46,416 |
|
Restructuring lease expense(a) |
|
|
2,020 |
|
|
|
2,027 |
|
Strategic alternatives expense(b) |
|
|
4,921 |
|
|
|
875 |
|
Cybersecurity incident expense(c) |
|
|
4,500 |
|
|
|
— |
|
Impairment charges and asset disposal losses(d) |
|
|
20 |
|
|
|
34 |
|
Litigation charges and regulatory expense(e) |
|
|
1,203 |
|
|
|
1,205 |
|
Non-cash share-based compensation expense(f) |
|
|
29,499 |
|
|
|
646 |
|
Depreciation and amortization |
|
|
5,480 |
|
|
|
5,192 |
|
Interest income, net of interest expense |
|
|
(1,546 |
) |
|
|
(3,744 |
) |
Provision for income taxes |
|
|
11,662 |
|
|
|
16,294 |
|
Other(g) |
|
|
1,964 |
|
|
|
1,195 |
|
Adjusted EBITDA |
|
$ |
75,177 |
|
|
$ |
70,140 |
|
Net income attributable to Phoenix Education Partners, Inc. margin |
|
|
5.9 |
% |
|
|
18.2 |
% |
Adjusted EBITDA margin |
|
|
28.7 |
% |
|
|
27.5 |
% |
Net revenue used in computing net income attributable to Phoenix Education Partners, Inc. margin and adjusted EBITDA margin |
|
$ |
262,027 |
|
|
$ |
254,692 |
|
(a)Restructuring lease expense represents non-cancelable lease obligations, including any offset from sublease income, and other related expenses for leased space we have exited as part of our ground campus and administrative space rationalization plans. In 2012, as a key component of the University’s transformation initiatives, the University began the process of completing the orderly closure of its ground campuses, as more enrolling students made the choice to take their programs online. The University completed the orderly closure of its campus locations in early fiscal year 2025, with only one physical location, in Phoenix, Arizona, currently enrolling new students. Additionally, the University completed its exit of 19 floors of its 22-floor administrative office buildings during fiscal year 2024 pursuant to its space rationalization plans.
(b)Strategic alternatives expense consists of costs incurred for our IPO and costs incurred for pursuing strategic ownership alternatives considered prior to our IPO.
(c)Represents expense associated with a cybersecurity incident we detected on November 21, 2025 (see Note 13. Commitments and Contingencies to our condensed consolidated financial statements).
(d)Represents non-cash impairment charges and asset disposal losses.
(e)Litigation charges and regulatory expense principally include $1.2 million in both the three months ended November 30, 2025 and 2024 associated with a multi-year insurance policy pertaining to borrower defense to repayment claims (see Note 13. Commitments and Contingencies to our condensed consolidated financial statements).
(f)Represents non-cash equity-based compensation expense in accordance with Accounting Standards Codification Topic 718, Compensation: Stock Compensation. Although share-based compensation is a key incentive offered to our employees, we evaluate our business performance excluding share-based compensation expense because it is a non-cash expense. The increase in share-based compensation expense in the three months ended November 30, 2025 compared to the prior year period resulted from our IPO (see Note 1. Nature of Operations and Significant Accounting Policies and Note 12. Share-Based Awards to our condensed consolidated financial statements).
(g)Other consists of management fees pursuant to a management consulting agreement (see Note 1. Nature of Operations and Significant Accounting Policies to our condensed consolidated financial statements) and other expenses that we believe are not indicative of our ongoing operations. The management consulting agreement was terminated effective as of the pricing of our IPO and therefore no management fees will accrue or be payable for periods after that date.
(h)Represents the income tax effect of these non-GAAP adjustments, calculated using the appropriate statutory tax rates.
Liquidity and Capital Resources
Our primary sources of cash are cash provided by operations and cash and cash equivalents and marketable securities on hand. We also have available liquidity through our $100 million revolving credit facility, which we have not drawn on as of November 30, 2025.
Our principal uses of cash are, and we expect to continue to be, payments of our operating expenses, such as wages and benefits, marketing and advertising and investments to maintain and enhance our digital technology platform and various technology systems to
support and improve the student experience. Additionally, our board of directors approved a regular, quarterly cash dividend of $0.21 per share of common stock that will be paid to shareholders of record and holders of certain share-based awards during our second quarter of fiscal year 2026. We plan to pay additional regular, quarterly cash dividends in subsequent quarters, subject to the discretion of our board of directors.
We believe that our existing cash and cash equivalents and marketable securities, revolving credit facility and cash generated from operating activities will be sufficient to meet our working and other capital requirements for the foreseeable future.
Although we currently have substantial liquidity, our ability to deploy currently available liquidity is constrained by our need to maintain a Department of Education financial responsibility composite score of at least 1.5. See Item 1A, “Risk Factors” included in our Annual Report on Form 10-K for a discussion of composite score requirements and calculations.
Cash and cash equivalents, restricted cash and cash equivalents and marketable securities
Our cash and cash equivalents, including restricted cash and cash equivalents and marketable securities are placed with high-credit-quality financial institutions. The following provides a summary of these financial instruments as of the respective periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30, |
|
|
|
|
($ in thousands) |
|
2025 |
|
|
2024 |
|
|
% Change |
|
Cash and cash equivalents |
|
$ |
151,285 |
|
|
$ |
136,504 |
|
|
|
10.8 |
% |
Restricted cash and cash equivalents |
|
|
39,739 |
|
|
|
36,497 |
|
|
|
8.9 |
% |
Current marketable securities |
|
|
12,191 |
|
|
|
9,005 |
|
|
|
35.4 |
% |
Noncurrent marketable securities |
|
|
14,891 |
|
|
|
12,803 |
|
|
|
16.3 |
% |
Total |
|
$ |
218,106 |
|
|
$ |
194,809 |
|
|
|
12.0 |
% |
Total cash and cash equivalents (including restricted cash and cash equivalents) and marketable securities (including current and noncurrent marketable securities) increased $23.3 million, or 12.0%, to $218.1 million during the three months ended November 30, 2025 from $194.8 million principally due to $31.1 million of cash generated from operating activities. This was partially offset by $4.7 million of capital expenditures.
As of November 30, 2025, our cash and cash equivalents (including restricted cash and cash equivalents) approximate fair value because of the short-term nature of the financial instruments. Our marketable securities (including current and noncurrent marketable securities) have original maturities to us greater than three months, and contractual maturities that will occur within three years. Our marketable securities are classified as available-for-sale and are measured at fair value. We determine the fair value of these investments using a market approach with Level 2 observable inputs including quoted prices for similar assets in active markets, or quoted prices for identical or similar assets in markets that are not active. We may sell certain of our marketable securities prior to their stated maturities for strategic reasons including, but not limited to, investment yield and credit risk management. We have not recognized significant gains or losses related to such sales. Additionally, all of the securities we hold are investment grade, and we had no related allowance for credit losses as of November 30, 2025.
Operating cash flows
The following provides a summary of our operating cash flows during the respective periods:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30, |
|
($ in thousands) |
|
2025 |
|
|
2024 |
|
Net income |
|
$ |
15,478 |
|
|
$ |
47,118 |
|
Non-cash items |
|
|
55,126 |
|
|
|
31,355 |
|
Changes in assets and liabilities, excluding impact of acquisition |
|
|
(39,537 |
) |
|
|
(112,476 |
) |
Net cash provided by (used in) operating activities |
|
$ |
31,067 |
|
|
$ |
(34,003 |
) |
Three months ended November 30, 2025 – Our non-cash items primarily consisted of $29.5 million of share-based compensation, a $9.6 million provision for credit losses on accounts receivable, $8.8 million of deferred income taxes, and $5.5 million of depreciation and amortization.
The changes in assets and liabilities primarily consisted of a $33.2 million increase in accounts receivable (excluding provision for credit losses in non-cash items discussed above), a $10.6 million increase in other assets and a $10.2 million decrease in accrued compensation and benefits, partially offset by a $23.9 million increase in deferred revenue.
Three months ended November 30, 2024 – Our non-cash items primarily consisted of $12.4 million of deferred income taxes, an $11.3 million provision for credit losses on accounts receivable, and $5.2 million of depreciation and amortization.
The changes in assets and liabilities primarily consisted of a $40.8 million increase in accounts receivable (excluding provision for credit losses in non-cash items discussed above), a $37.1 million decrease in student deposits (see further discussion below) and decreases in accrued compensation and benefits and accounts payable, partially offset by a $12.5 million increase in deferred revenue.
The decrease in student deposits was primarily due to a change in the timing of financial aid disbursements for the University’s students. Before the change, financial aid funds were typically disbursed in two installments that generally involved four courses. Such funding was included in student deposits on our condensed consolidated balance sheets until students began subsequent courses. Beginning in July 2024, the University began transitioning to financial aid disbursements by course with students transitioning after they complete their current academic year. Accordingly, student deposits decreased throughout fiscal year 2025 as the University’s students transitioned to single course financial aid disbursements.
Investing cash flows
The following provides a summary of our investing cash flows during the respective periods:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30, |
|
($ in thousands) |
|
2025 |
|
|
2024 |
|
Purchases of property and equipment |
|
$ |
(4,716 |
) |
|
$ |
(5,792 |
) |
Marketable securities (purchases) sales and maturities, net |
|
|
(5,429 |
) |
|
|
1,400 |
|
Acquisition, net of cash acquired |
|
|
— |
|
|
|
(1,982 |
) |
Net cash used in investing activities |
|
$ |
(10,145 |
) |
|
$ |
(6,374 |
) |
Three months ended November 30, 2025 and 2024 – Cash used in investing activities was $10.1 million and $6.4 million for the three months ended November 30, 2025 and 2024, respectively. Capital expenditures during both periods principally represent internal software development. In addition, we paid $2.0 million, net of cash acquired, in the three months ended November 30, 2024 to acquire a controlling interest in Empath, Inc. (see Note 3. Acquisition to our condensed consolidated financial statements for more information).
Financing cash flows
The following provides a summary of our financing cash flows during the respective periods:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30, |
|
($ in thousands) |
|
2025 |
|
|
2024 |
|
Payments of dividend equivalents |
|
$ |
(721 |
) |
|
$ |
(141 |
) |
Payroll taxes paid on share-based awards |
|
|
(2,178 |
) |
|
|
(764 |
) |
Net cash used in financing activities |
|
$ |
(2,899 |
) |
|
$ |
(905 |
) |
Three months ended November 30, 2025 and November 30, 2024 – Cash used in financing activities was $2.9 million and $0.9 million for three months ended November 30, 2025 and 2024, respectively. The cash flows in both periods represented payroll taxes and dividend equivalents paid associated with share-based awards.
Off-Balance Sheet Arrangements
We had a $32 million outstanding cash collateralized letter of credit as of November 30, 2025, which supports a sublease for a facility we have exited. Additionally, our insurers issue surety bonds that are required by various states where we operate, or that are required for other purposes. We are obligated to reimburse our insurers for any surety bonds that are paid. As of November 30, 2025, the face amount of these surety bonds was less than $1 million.
Critical Accounting Estimates
A detailed discussion of our critical accounting estimates and significant accounting policies is included under the caption “Critical Accounting Estimates” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2025 Annual Report on Form 10-K. During the three months ended November 30, 2025, there have been no material changes to our critical accounting estimates or our significant accounting policies as disclosed in our 2025 Annual Report on Form 10-K.
Recent Accounting Pronouncements
See Note 1. Nature of Operations and Significant Accounting Policies to our condensed consolidated financial statements for recently issued accounting pronouncements adopted or not yet adopted as of the date of this Quarterly Report on Form 10-Q.
JOBS Act Accounting Election
The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” We have elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our audited financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. See Note 1. Nature of Operations and Significant Accounting Policies to our audited consolidated financial statements for more information regarding new or revised accounting pronouncements.
We have chosen to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company” we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act; (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies; (iii) comply with certain types of new requirements adopted by the PCAOB; and (iv) disclose certain executive compensation-related items, such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. We may remain an “emerging growth company” until August 31, 2031. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenue equals or exceeds $1.235 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an “emerging growth company” prior to such date.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
We are subject to the impact of interest rate changes and may be subject to changes in the market values of our investments. We invest our excess cash in cash equivalents and marketable securities and earnings from such investments may be adversely affected in the future should interest rates decline. Our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates. During the three months ended November 30, 2025 and 2024, our interest rate yields were approximately 3% and 4%, respectively, and we earned $1.8 million and $3.9 million of interest income, respectively.
We do not currently have material risk associated with interest expense as we did not have any outstanding debt as of November 30, 2025.
Item 4. Controls and Procedures.
Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended November 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.