Phoenix Education Partners, Inc.

Note 1. Nature of Operations and Significant Accounting Policies

Description of Business

Phoenix Education Partners, Inc. (“Phoenix Education Partners”, and together with its subsidiaries, the “Company”,“we”, “us”, or “our”) is a Delaware corporation. Prior to October 7, 2025, we operated as a Delaware limited partnership under the name AP VIII Queso Holdings, L.P. (“Queso”). On October 7, 2025, Queso converted into a Delaware corporation pursuant to a statutory conversion and changed its name to Phoenix Education Partners, Inc. (the “Corporate Conversion”). In connection with the Corporate Conversion, all 1,028,000 outstanding limited partnership units of Queso were converted on a 1-for-33.858 basis into an aggregate of 34,805,541 shares of our common stock. Phoenix Education Partners holds all of the property and assets and assumed all of the debts and obligations of Queso.

We, through our subsidiary, principally operate The University of Phoenix, Inc. (the “University”), which offers undergraduate, graduate, certificate and non-degree educational programs and services principally online to working adults in the United States. Phoenix Education Operating Corp. (“PEOC”) is our direct wholly owned subsidiary and the direct parent of the University.

Initial Public Offering

On October 10, 2025, we completed an initial public offering (the “IPO”) in which certain existing stockholders sold 4,250,000 shares of our common stock at a public offering price of $32.00 per share. On October 15, 2025, the selling stockholders sold an additional 637,500 shares pursuant to the underwriters’ option to purchase additional shares. The selling stockholders received all proceeds from the IPO, and we did not issue or sell any shares or receive any proceeds. As a result, we expensed$4.5 million and$10.5 million of IPO-related offering costs during fiscal years 2026 and 2025, respectively, which are included in strategic alternatives, restructuring and other on our consolidated statements of income.

Prior to the IPO, we indirectly owned approximately 98% of the outstanding shares of the University’s common stock. In connection with the Corporate Conversion and IPO, all shares of the University’s common stock owned by persons other than the Company were converted into shares of our common stock on a one-for-one basis. We issued 790,714 shares of our common stock in the conversion, and the University became a wholly owned subsidiary of PEOC.

We retained a controlling financial interest in the University before and after the Corporate Conversion and IPO and, accordingly, the conversion was accounted for as an equity transaction. The carrying amount of the noncontrolling interest was adjusted to reflect the change in ownership, and the resulting difference was recognized in equity attributable to Phoenix Education Partners, Inc.

In connection with the IPO, the Phoenix Education Partners, Inc. 2025 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) and the Phoenix Education Partners, Inc. Employee Stock Purchase Plan (the “ESPP”) became effective. We also modified certain outstanding awards granted under the University of Phoenix, Inc. Management Equity Plan (the “UOPX Plan”) prior to the IPO and granted restricted stock units, performance share units and unrestricted shares under the Omnibus Incentive Plan. See Note 14. Share-Based Awards and Savings Planfor additional information.

Basis of Presentation

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

In accordance with Accounting Standards Codification Topic 260, Earnings Per Share, we have applied retrospective presentation to our earnings per share for all periods presented in our financial statements to reflect the shares of common stock resulting from our IPO. Refer to Note 13. Earnings Per Share for additional information.

Beginning in the first quarter of fiscal year 2026 and after the IPO, we began separately presenting tax withholdings for share‑based award settlements and dividends and dividend equivalents to noncontrolling interests on our consolidated statements of equity and consolidated statements of cash flows. We have reclassified prior periods to conform to our current period presentation.

Estimates, Assumptions and Judgments

The preparation of these consolidated financial statements in accordance with GAAP requires management to make certain estimates, assumptions and judgments that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during applicable reporting periods. Although we believe our estimates, assumptions and judgments are reasonable, actual results may differ from our estimates under different assumptions, judgments or conditions.

Principles of Consolidation

Our consolidated financial statements include the assets, liabilities, revenues and expenses of Phoenix Education Partners, our wholly owned subsidiaries and other subsidiaries that we control. Intercompany transactions and balances are eliminated in consolidation.

We recognize noncontrolling interests for ownership interests in consolidated subsidiaries not attributable to the Company and allocate net income or loss to noncontrolling interests generally based on the respective ownership interests.

Revenue Recognition

We recognize revenue in a manner to depict the transfer of goods or services to our customers at an amount that reflects the consideration we expect to receive in exchange for our goods or services. The University generates all of our consolidated net revenue, and substantially all of the University’s net revenue is generated from tuition-bearing degree programs. Students may fund their education using a single source or combination of sources, including loans and grants from U.S. federal financial aid programs established under Title IV of the Higher Education Act and related regulations (“Title IV”), military benefit programs, employer tuition assistance and personal funds.

We apply the portfolio approach to revenue recognition because the terms and characteristics of the University’s student contracts are sufficiently similar, including the terms of enrollment agreements, refund policies and payment arrangements. We do not expect the resulting revenue recognition to differ materially from the amount that would be recognized if each student contract were evaluated separately.

Under the University’s non-term academic delivery model, students generally enroll in a program of study encompassing a series of courses taken consecutively over the length of the program. Each course represents one performance obligation that the University satisfies over time and, accordingly, time elapsed (an output method) is used to recognize revenue evenly over the duration of the course (e.g., daily over a five-week course). For students who participate in the University’s risk-free, three-week program during their first credit-bearing course, the University does not recognize revenue for the risk-free period until students continue beyond the risk-free period, which is when the contract with the student has commercial substance.

The University’s refund policy permits students who attend 60% or less of a course to be eligible for a refund for the portion of the course they did not attend. Accordingly, the University ceases revenue recognition for the remainder of a course if a student withdraws prior to the tuition refund period elapsing. We record refunds as a reduction of deferred revenue, and refunds are limited to the balance of deferred revenue at the date that a student withdraws.

Discounts are generally recognized over the period of instruction in the same manner as the related revenue to which the discount relates. Additionally, the University offers certain discount programs which provide students with the opportunity to earn increased tuition discounts as they take certain courses. The University evaluates such programs to determine whether the future discounts represent a material right to the student. If the future discounts represent a material right, we estimate the amount of these future discounts based on historical experience with student persistence and recognize the associated amount when the performance obligation is satisfied, which is either when the student attends applicable future courses or is no longer eligible for the discount. As of August 31, 2026 and 2025, we had$13.3 million and$13.1 million, respectively, of contract liabilities for discount programs that represent material rights to students that are included in other current liabilities on our consolidated balance sheets.

As of August 31, 2026 and 2025, in addition to the material rights discussed above, we had contract liabilities consisting of deferred revenue and student deposits as reflected on our consolidated balance sheets. Changes in contract liabilities primarily result from the timing of financial aid disbursements, course starts and our performance under student contracts. The substantial majority of our deferred revenue and student deposits balances as of a respective period end will be recognized in net revenue during the sequential quarter due to course start timing and course duration.

Tuition benefits for our employees and their eligible dependents are included in net revenue and instructional and support costs on our consolidated statements of income and were$3.9 million and$3.8 million during fiscal years 2026 and 2025, respectively.

Sales and other indirect taxes collected from students and remitted to taxing authorities are excluded from net revenue. Collected but unremitted sales and other indirect taxes are included as a liability on our consolidated balance sheets and are not material.

Allowance for Credit Losses

We reduce accounts receivable by an allowance for expected credit losses. The allowance reflects our estimate of credit losses expected over the contractual life of the receivables and is based on historical collection and write-off experience, current student enrollment, aging of receivables, current conditions, reasonable and supportable forecasts of future economic conditions, and other relevant factors. Estimating expected credit losses requires judgment because future collection activity may differ from historical experience and the composition and characteristics of our receivables may change over time. Accounts receivable are written off when deemed uncollectible, which typically occurs after collection efforts have ceased.

Cash and Cash Equivalents and Restricted Cash and Cash Equivalents

We consider all highly liquid investments with original maturities of three months or less from the date we purchase the investment to be cash equivalents. Our cash and cash equivalents are held with high-credit-quality financial institutions. Certain balances may exceed amounts insured by the Federal Deposit Insurance Corporation. We havenot experienced any losses on our cash and cash equivalents.

Restricted cash and cash equivalents are presented separately from cash and cash equivalents on our consolidated balance sheets. Restricted cash primarily represents Title IV funds held for students that result in credit balances on student accounts. These funds are restricted pursuant to the terms of the University’s program participation agreement (“PPA”) with the U.S. Department of Education (the “Department of Education”) and such terms and conditions are the only restriction on use of the funds. The August 31, 2025 balance also included cash collateral supporting a letter of credit related to a sublease. During fiscal year 2026, we replaced the cash-collateralized letter of credit with a letter of credit issued under our senior secured revolving credit facility, releasing the related collateral and reducing restricted cash. See Note 15. Commitments and Contingencies.

The following provides a reconciliation of cash and restricted cash as presented on our consolidated statements of cash flows as of August 31:

Marketable Securities

We invest excess cash in money market funds and marketable debt securities, including U.S. Treasury and agency securities, commercial paper and corporate debt securities. Investments with original maturities greater than three months are classified as marketable securities. Marketable securities with remaining contractual maturities of twelve months or less are classified as current assets, and those with remaining contractual maturities greater than twelve months are classified as noncurrent assets.

We classify our marketable debt securities as available-for-sale and report at fair value. Unrealized gains and the noncredit component of unrealized losses, net of tax, are recorded in accumulated other comprehensive (loss) income, net. Credit losses are recognized in earnings through an allowance for credit losses.

We evaluate available-for-sale debt securities for impairment at each reporting date. If we intend to sell a security, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis, the amortized cost basis is written down to fair value through earnings. Otherwise, any credit-related impairment is recognized in earnings through an allowance for credit losses, limited to the amount by which the amortized cost basis exceeds fair value, and any remaining unrealized loss is recognized in other comprehensive income.

Property and Equipment, Net

Property and equipment is recorded at cost less accumulated depreciation. We capitalize certain costs to internally develop software, consisting primarily of direct labor associated with creating the software. Software development projects generally include three stages: the preliminary project stage, the application development stage, and the post-implementation/operation stage. Costs incurred during the preliminary project stage and post-implementation/operation stage are expensed as incurred. Qualifying costs incurred during the application development stage are capitalized, which primarily include costs related to application design, coding, and testing.

Our construction in progress principally represents internally developed software. Construction in progress is recorded at cost and depreciation begins when the related asset is ready for its intended use. Costs of repairs and maintenance are expensed as incurred.

Property and equipment is depreciated using the straight-line method over the following useful lives:

Business Combinations

We include the results of operations of acquired businesses beginning on the acquisition date. We allocate the purchase price of acquisitions to the assets acquired and liabilities assumed at fair value. The excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed is recorded as goodwill. We expense transaction costs associated with business combinations as incurred.

Goodwill, Intangible Assets and Other Long-Lived Assets

We assign indefinite useful lives to intangible assets when there are no legal, regulatory, contractual, competitive, economic or other factors that limit the period over which the assets are expected to contribute to cash flows. Indefinite-lived intangible assets are not amortized. Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives.

We test goodwill for impairment annually as of July 1 and between annual tests when events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We may first perform a qualitative assessment to determine whether a quantitative impairment test is necessary. If a quantitative test is performed, we compare the fair value of the reporting unit with its carrying amount and recognize an impairment loss for the amount by which the carrying amount exceeds fair value.

We test indefinite-lived intangible assets for impairment annually as of July 1 and between annual tests when events or changes in circumstances indicate that it is more likely than not that an asset is impaired. We may first perform a qualitative assessment to determine whether a quantitative impairment test is necessary. If a quantitative test is performed, we compare the fair value of the indefinite-lived intangible asset with its carrying amount and recognize an impairment loss for any excess of carrying amount over fair value.

We evaluate finite-lived intangible assets and other long-lived assets, including property and equipment and operating lease right-of-use assets, for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability is assessed at the asset-group level by comparing the carrying amount of the applicable asset group with the undiscounted cash flows expected to result from its use and eventual disposition. If the carrying amount is not recoverable, an impairment loss is recognized for the amount by which the carrying amount exceeds fair value.

The evaluation of goodwill, intangible assets or other long-lived assets for impairment requires significant judgment. In performing qualitative assessments, we consider factors such as general economic conditions, industry and market conditions, financial performance, changes in key business drivers, long-term operating plans and changes in assumptions used in prior fair value analyses. When quantitative testing is required, we generally estimate fair value using an income approach, a market approach or a combination of both. These measurements generally use significant unobservable inputs and are classified within Level 3 of the fair value hierarchy.

Leases

We determine whether an arrangement is or contains a lease at inception and classify leases as either operating or finance leases. We have elected not to recognize right-of-use (“ROU”) assets and lease liabilities for leases with initial terms of twelve months or less. Lease cost for short-term leases is recognized on a straight-line basis over the lease term.

At lease commencement, we recognize a ROU asset and lease liability. The lease liability is measured at the present value of fixed lease payments over the lease term, and the ROU asset is measured based on the lease liability, adjusted for prepaid or accrued lease payments, lease incentives and initial direct costs. Lease cost for our operating leases is recognized on a straight-line basis over the lease term. We did not have any finance leases in fiscal years 2026 or 2025.

We have elected not to separate lease and non-lease components for all classes of underlying assets and account for each lease and its associated non-lease components as a single lease component. Variable lease payments that are not included in the measurement of the lease liability are recognized as expense in the period incurred.

When the interest rate implicit in a lease is not readily determinable, we use our incremental borrowing rate to measure the lease liability. Our incremental borrowing rate is based on U.S. Treasury yield curve rates adjusted for our credit risk and the term and collateral characteristics of the lease.

Restructuring Charges

Restructuring charges principally include costs associated with exited leased space, severance and other employee separation costs, and other exit activities.

For exited leased space, restructuring liabilities are recognized when the related contract is terminated or when we cease using the leased space. The remaining liability consists of estimated future non-rent executory costs from leases exited prior to adopting the new lease accounting standard.

Severance and other employee separation costs are recognized when the affected employees are notified, unless the employees are required to provide future service to receive the benefits, in which case the costs are recognized over the required service period.

Changes in the estimated timing or amount of cash flows associated with restructuring obligations are recognized in the period of change using the discount rate applied at initial measurement. Changes resulting from the passage of time are recognized as accretion expense. Adjustments to restructuring obligations, including accretion expense, are included in strategic alternatives, restructuring and other on our consolidated statements of income.

Debt Issuance Costs

Costs incurred to establish the senior secured revolving credit facility are deferred and presented in other noncurrent assets on our consolidated balance sheets. These costs are amortized on a straight-line basis over the term of the facility, and the amortization is included in interest expense on our consolidated statements of income. Commitment fees on the unused portion of the facility are expensed as incurred and included in interest expense. See Note 10. Revolving Credit Facility for additional information.

Loss Contingencies

We are subject to claims and contingencies arising in the ordinary course of business, including matters related to regulation, litigation, business transactions, employees and taxes.

We assess the likelihood of loss when we become aware of a claim or potential claim. We record a liability when a loss is probable and the amount or range of loss can be reasonably estimated. Anticipated recoveries from third parties, including insurers, are not offset against the liability and are recognized separately when recovery is probable.

If a loss is not probable or cannot be reasonably estimated, we disclose the matter when a loss is reasonably possible and the potential exposure could be material. Legal costs are expensed as incurred.

Share-Based Compensation

We classify share-based awards as either equity or liabilities based on the terms of the awards and applicable accounting guidance. Equity awards are measured based on grant-date fair value and are not subsequently remeasured unless modified. We did not have any liability classified awards in fiscal years 2026 or 2025.

Compensation cost for awards with only service conditions is recognized over the requisite service period, generally on a straight-line basis. Compensation cost for awards with performance conditions is recognized when achievement of the applicable performance condition is probable, based on the number of awards expected to vest. For awards with a market condition, the effect of the market condition is reflected in the grant-date fair value of the award, and compensation cost is recognized over the requisite service period regardless of whether the market condition is ultimately achieved, provided the requisite service is rendered. We account for forfeitures when they occur.

We estimate the fair value of stock options using the Black-Scholes option-pricing model. The fair value of awards containing market conditions is estimated using a Monte Carlo simulation or another appropriate valuation technique.

The accounting for a modification of a share-based award depends on the terms and conditions of the original and modified awards. A modification is generally accounted for as an exchange of the original award for a new award with incremental compensation cost recognized for the excess, if any, of the fair value of the modified award over the fair value of the original award immediately before the modification. See Note 14. Share-Based Awards and Savings Plan for information regarding our share-based compensation arrangements and IPO-related award modifications.

Income Taxes

We are subject to the income tax laws of the United States, which are complex and subject to differing interpretations. We recognize current income taxes payable or refundable and deferred tax assets and liabilities for the future tax consequences of events recognized in our financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply when the related temporary differences are recovered or settled. Changes resulting from newly enacted tax rates are recognized in earnings in the period of enactment. We record a valuation allowance when it is more likely than not that some or all of our deferred tax assets will not be realized.

We recognize a tax benefit from an uncertain tax position only when it is more likely than not, based solely on the technical merits, that the position will be sustained upon examination. The amount recognized is the largest benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. We derecognize a previously recognized tax benefit when the position no longer meets the recognition threshold. Interest and penalties related to unrecognized tax benefits are included in provision for income taxes on our consolidated statements of income.

Advertising Costs

We expense advertising costs as incurred. Advertising costs were$190.9 million and$181.5 million during fiscal years 2026 and 2025, respectively, and are included in general and administrative expenses on our consolidated statements of income.

Earnings Per Share

Basic earnings per share is computed by dividing net income attributable to Phoenix Education Partners, Inc. by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share reflects the potential dilution from outstanding share-based awards and other potentially dilutive securities using the treasury stock method, when applicable. Potential common shares are excluded from diluted earnings per share when their effect would be antidilutive. Contingently issuable shares, including certain performance share units, are included in diluted earnings per share only when the applicable conditions have been satisfied as of the end of the reporting period, assuming the end of the reporting period were the end of the contingency period.

Share Repurchases

Shares of common stock repurchased by the Company are retired upon repurchase. The par value of the retired shares is recorded as a reduction of common stock, and the repurchase price and direct transaction costs in excess of par value are recorded as a reduction of additional paid-in capital. Applicable excise taxes, if any, are included in the cost of the repurchased shares.

Related Party Transactions

Prior to the IPO, we paid affiliates of Apollo Global Management, Inc. (“Apollo”) and The Vistria Group, LP (“Vistria”) for management consulting and advisory services. Our management consulting agreements with Apollo and Vistria terminated upon pricing of the IPO. Amounts paid for these services during fiscal year 2026 were immaterial, and we paid approximately $2 million during fiscal year 2025.

We remain a controlled company of Apollo following the IPO and enter into transactions with certain Apollo-affiliated portfolio companies in the ordinary course of business. We paid Rackspace Technology, Inc.$7.0 millionand$4.8 million during fiscal years 2026 and 2025, respectively, for technology services.

Fair Value

The carrying amount of financial assets and financial liabilities reported on our consolidated balance sheets, including accounts receivable and accounts payable, approximate fair value because of the short-term nature of these financial instruments.

For fair value measurements of assets and liabilities that are recognized or disclosed at fair value, we consider fair value to be an exit price, which represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. We use valuation techniques to determine fair value consistent with the market approach, income approach and/or cost approach, and we prioritize the inputs used in our valuation techniques using the following three-tier fair value hierarchy:

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Level 1 - Observable inputs that reflect unadjusted quoted prices in active markets for identical assets and liabilities;

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Level 2 - Observable inputs other than quoted prices in active markets for identical assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

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Level 3 - Unobservable inputs that are supported by little or no market activity.

We categorize each of our fair value measurements for disclosure purposes in one of the above three levels based on the lowest level input that is significant to the fair value measurement in its entirety. In measuring fair value, our valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. We use prices and inputs that are current as of the measurement date, including during periods of market volatility. Therefore, classification of inputs within the hierarchy may change from period to period depending upon the observability of those prices and inputs.

Recently Adopted Accounting Standards

Income Taxes – Income Tax Disclosures

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances annual disclosures relating primarily to the effective income tax rate reconciliation and income taxes paid by jurisdiction. We adopted ASU 2023-09 on September 1, 2025 using the prospective transition method. The adoption resulted in additional disclosures, but did not affect our consolidated financial position, results of operations or cash flows.

Accounting Standards Not Yet Adopted

Financial Instruments – Credit Losses

In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326-20): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The guidance provides a practical expedient that permits entities, when estimating expected credit losses for current accounts receivable and current contract assets, to assume that conditions existing at the balance sheet date will remain unchanged over the remaining life of the assets. The guidance is effective for our fiscal year beginning September 1, 2026, including interim periods within that fiscal year. We intend to elect the practical expedient and do not expect the adoption of the guidance to have a material impact on our financial position, results of operations or cash flows.

Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The guidance requires additional interim and annual disclosures about specified expenses included in certain income statement captions and additional disclosures regarding selling expenses. The guidance is effective for our fiscal year beginning September 1, 2027 and for interim periods beginning September 1, 2028. The guidance may be applied prospectively or retrospectively. We are evaluating the transition method and the effect adoption will have on our financial statement disclosures.

Intangibles Goodwill and Other – Internal-Use Software

In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. The guidance removes references to software-development project stages and requires capitalization to begin when management has authorized and committed to funding the project and it is probable that the project will be completed and used to perform its intended function. The guidance is effective for our fiscal year beginning September 1, 2028, including interim periods within that fiscal year. We are evaluating the effect adoption may have on our consolidated financial statements.

Interim Reporting

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. The guidance clarifies the applicability of interim reporting guidance and the form and content of interim financial statements. The guidance is effective for our fiscal year beginning September 1, 2028, including interim periods within that fiscal year. We are evaluating the effect adoption may have on our interim financial statement disclosures.

Note 2. Strategic Alternatives, Restructuring and Other

Strategic alternatives, restructuring and other includes the following during the respective periods:

(1)

During fiscal year 2026, we began separately presenting Litigation charges and regulatory expense in the table above, which were previously included in Other. We have reclassified the prior year to conform to our current year presentation.

Strategic alternatives represents costs associated with our IPO, other capital market transactions, and the evaluation of other strategic alternatives. Strategic alternatives expense decreased during fiscal year 2026 compared with fiscal year 2025 primarily due to lower IPO-related costs and the absence of a $12.2 million termination fee incurred in fiscal year 2025 in connection with the termination of the proposed sale of substantially all of the University’s assets to Four Three Education, Inc.

See Note 1. Nature of Operations and Significant Accounting Policiesfor information on our IPO, Note 15. Commitments and Contingencies for information on the cybersecurity incident and related loss contingency, as well as a separate class action lawsuit, and Note 9. Other Liabilities for information on lease restructuring.

Note 3. Acquisition

As of August 31, 2024, Talent Mobility, LLC, a wholly owned subsidiary of PEOC, had a minority ownership interest in Empath, Inc. (“Empath”). Empath provides clients with a company-wide skills inventory for its employees through machine learning-based skills inference. In the first quarter of fiscal year 2025, PEOC acquired a controlling interest in Empath pursuant to an Agreement and Plan of Merger, by merging Talent Mobility, LLC with Empath, with Empath surviving as a subsidiary of PEOC. Empath was subsequently renamed “Talent Mobility, Inc.” PEOC paid approximately $2 million, net of cash acquired, to facilitate this merger and did not incur material transaction costs.

We accounted for this merger as a business combination and allocated the purchase price to the assets acquired and liabilities assumed at fair value as summarized below:

We determined fair value using the following assumptions, the majority of which include significant unobservable inputs (Level 3), that we believe reasonable market participants would use while employing the concept of highest and best use of the respective items:

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Intangibles – We valued the technology primarily using the replacement cost approach. We determined this acquired intangible asset is finite-lived and we are amortizing the asset on a straight-line basis over three years, which we believe reflects the pattern in which the economic benefits of the asset are expected to be consumed.

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Other – The carrying value of all other assets acquired and liabilities assumed approximated their fair value at the time of acquisition.

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Noncontrolling interests – We estimated the fair value of the noncontrolling interests principally as the noncontrolling ownership percentage of the implied fair value of the acquired entity, and applied a discount for lack of control.

The goodwill resulting from the merger is principally attributable to the future earnings potential associated with customer enrollment growth and other intangibles that do not qualify for separate recognition such as the assembled workforce. The operating results of Empath are included in our consolidated financial statements from the date of acquisition and its results are not material to our consolidated results of operations. Pro forma financial information is not presented as Empath’s results were not material to our consolidated statements of income.

Note 4. Financial Instruments

The following summarizes our cash and cash equivalents, restricted cash and cash equivalents and marketable securities by financial instrument category as of the respective periods:

(1)

Cash and cash equivalents includes restricted cash and cash equivalents.

We measure our financial instruments at fair value on a recurring basis as follows:

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Money market funds and U.S. Treasury securities—We use Level 1 inputs that primarily consist of real-time quotes for transactions in active exchange markets involving identical assets.

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Other financial instruments—We use a market approach with Level 2 observable inputs for all other securities. The Level 2 inputs include quoted prices for similar assets in active markets, or quoted prices for identical or similar assets in markets that are not active.

Our marketable securities have maturities that occur within three years. 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 our securities are investment grade and are classified as available-for-sale.

As of August 31, 2026 and 2025, we hadno allowance for credit losses on our available-for-sale debt securities and recognized no credit losses on such securities in earnings during fiscal years 2026 and 2025.

Note 5. Accounts Receivable, Net

Accounts receivable, net consists of the following as of August 31:

The student receivables are not collateralized; however, credit risk is reduced as the amount owed by any individual student is insignificant relative to the total student receivables.

The following summarizes the activity in allowance for credit losses during the respective periods:

Our provision for credit losses on accounts receivable decreased by $17.0 million in fiscal year 2026 compared to fiscal year 2025 principally due to higher student retention.

Note 6. Property and Equipment, Net

Property and equipment, net consists of the following as of August 31:

Depreciation expense was the following during the respective periods:

Note 7. Goodwill and Intangibles

Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the net identifiable assets acquired and liabilities assumed. There were no additions to goodwill or goodwill impairment losses during fiscal year 2026. See Note 3. Acquisition for goodwill acquired in fiscal year 2025.

Intangible assets consist of the following as of the respective periods:

(1)

As disclosed in Note 3. Acquisition, we acquired certain intangible assets in fiscal year 2025.

Our finite-lived intangible assets are amortized on a straight-line basis. Amortization expense in fiscal years 2026 and 2025 was$2.6 million and$2.8 million, respectively.

The weighted-average remaining useful life of our finite-lived intangible assets as of August 31, 2026 was approximately 1.1 years. The estimated future amortization expense of our finite-lived intangible assets as of August 31, 2026 is as follows:

Note 8. Leases

We lease office space under an operating lease arrangement and the lease cost is included in instructional and support, general and administrative, and strategic alternatives, restructuring and other expense, as applicable, on our consolidated statements of income.

The components of lease cost and sublease income were as follows during the respective periods:

(1)

Sublease income represents all of our consolidated lease income and is recorded as an offset to lease expense in strategic alternatives, restructuring and other on our consolidated statements of income. As of August 31, 2026, we expect to recognize$30.5 million of additional sublease income through the sublease termination in March 2031.

Short-term lease costs werenot material infiscal years 2026 and 2025.

Future payments related to our operating lease liabilities were as follows for periods subsequent to August 31, 2026:

The following provides supplemental information related to leases for the respective periods:

Note 9. Other Liabilities

Other current liabilities consist of the following as of August 31:

Other long-term liabilities consist of the following as of August 31:

(1)

Estimated loss contingencies as of August 31, 2026 relate to the litigation matters discussed in Note 15. Commitments and Contingencies.

(2)

Our restructuring represents the rationalization of our leased administrative office space. Our total liability, including current and long-term balances, was$15.0 million and$15.9 million as of August 31, 2026 and 2025, respectively. The liability represents the present value of future estimated non-rent, executory costs associated with exited space for a lease that terminates in March 2031. The decrease in the liability during fiscal year 2026 was principally attributable to payments related to such lease partially offset by an increase in our estimated future cash flows associated with exited space. The estimated gross, undiscounted, obligation associated with this liability was approximately$17 million as of August 31, 2026.

(3)

Our uncertain tax positions principally relate to a worthless stock deduction taken in fiscal year 2019 for which we have recorded an uncertain tax position liability as we use the net operating losses associated with the unrecognized tax benefits.

Note 10. Revolving Credit Facility

On November 13, 2025, we entered into a senior secured revolving credit facility in an aggregate principal amount of$100.0 million (the “Revolving Facility”). The Revolving Facility is available for general corporate purposes, including letters of credit, for the Company and its subsidiaries. The Revolving Facility matures on November 13, 2030. Borrowings under the Revolving Facility bear interest at a rate equal to, at our option, either (a) a term Secured Overnight Financing Rate (“SOFR”) (subject to a floor ofzero), plus an applicable margin of 2.50% per annum or (b) a base rate (subject to a floor of 1.00%) determined by reference to the highest of (i) the greater of the federal funds effective rate and the overnight bank funding rate, in each case plus 0.50% per annum, (ii) the rate of interest per annum determined by the administrative agent under the Revolving Facility as its prime commercial lending rate for loans denominated in U.S. dollars and (iii) the one-month term SOFR plus 1.00% per annum, plus an applicable margin of 1.50% per annum. The Revolving Facility also has a commitment fee equal to 0.375% per annum of the unutilized commitments.

In addition, the Revolving Facility requires us to comply on a quarterly basis with a maximum leverage ratio if borrowings under the Revolving Facility on such date exceed 35% of the then outstanding commitments under the Revolving Facility. As of August 31, 2026, we were in compliance with the terms and conditions of the Revolving Facility.

As of August 31, 2026, we hadno outstanding borrowings under the Revolving Facility (with an outstanding letter of credit of$28.4 million under the Revolving Facility) (see Note 15. Commitments and Contingencies).

Note 11. Income Taxes

All of our income before income taxes was generated in the United States in fiscal years 2026 and 2025. The provision for income taxes consists of the following during the respective periods:

Effective Tax Rate Reconciliation

We adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, on September 1, 2025 using the prospective transition method. Accordingly, the new disclosures resulting from our adoption are presented for fiscal year 2026, while comparative fiscal year 2025 information continues to be presented in accordance with the prior disclosure requirements.

The provision for income taxes differs from the amount computed by applying the statutory U.S. federal income tax rate to income before income taxes as follows for fiscal year 2026:

(1)

State income taxes in Arizona, California, Georgia, Illinois, Pennsylvania and New Jersey comprised the majority of the tax effect in this category.

The provision for income taxes differs from the tax computed using the statutory U.S. federal income tax rate of 21% as follows for fiscal year 2025:

Deferred Income Taxes

Deferred tax assets and liabilities consist of the following as of August 31:

(1)

As of August 31, 2026, we had$7.1 millionof state net operating losses that carry forward indefinitely and $253.7 million that expire in various years beginning in 2037 through 2039. In addition, Talent Mobility, Inc. (see Note 3. Acquisition) has $9.2 million offederal net operating losses that carry forward indefinitely, $0.1 million of state net operating losses that carry forward indefinitely, and $2.6 million of state net operating losses that expire in various years beginning in 2040 through 2044. The Talent Mobility, Inc. net operating loss carryforwards are only available to offset taxable income generated by Talent Mobility, Inc. The utilization of both the Company’s and Talent Mobility, Inc.’s net operating loss carryforwards may be subject to annual limitations due to ownership change provisions, as applicable, under income tax laws.

(2)

During fiscal year 2025, we recorded a full valuation allowance for deferred taxes related to our Talent Mobility, Inc. operations. We have not recorded a valuation allowance for any other deferred tax assets principally based on our recent cumulative pre-tax income.

Income Taxes Paid

Income taxes paid, net of refunds received, were as follows during fiscal year 2026:

No individual state or local jurisdiction exceeded 5% of total income taxes paid.

Uncertain Tax Positions

The following summarizes the activity in unrecognized tax benefits, excluding interest and penalties, for the respective periods:

Interest and penalties related to unrecognized tax benefits are included in our provision for income taxes. Interest and penalties recognized during fiscal years 2026 and 2025, and the related amounts accrued as of August 31, 2026 and 2025, were not material.

As of August 31, 2026,$26.1 million of our unrecognized tax benefits would favorably affect our effective tax rate if recognized. If amounts accrued are less than amounts ultimately assessed by the taxing authorities, we would record additional income tax expense.

Income Tax Audits

Our U.S. federal income tax return for fiscal year 2023 is currently under review by the Internal Revenue Service and the scope of the review includes our worthless stock deduction claimed in fiscal year 2019 that generated a net operating loss, which was partially carried forward and utilized in fiscal year 2023. Additionally, our U.S. federal income tax returns for fiscal years 2024 and 2025 are currently open for review and tax years as early as fiscal year 2022 remain subject to examination by state or local tax authorities. Although we believe our tax positions are reasonable, the final determination of tax returns under review or returns that may be reviewed in the future and any related litigation could result in tax liabilities that materially differ from our historical income tax provisions and accruals.

Tax Law Changes

The One Big Beautiful Bill Act (“OBBB”), signed into law on July 4, 2025, included significant changes to federal income tax related provisions. We have analyzed and accounted for the impacts of OBBB and determined there is no material impact on our effective tax rate for fiscal year 2026.

Note 12. Common Stock Repurchase Program

In April 2026, our board of directors approved a$50.0 million stock repurchase program (the “April 2026 Repurchase Program”). The April 2026 Repurchase Program was publicly announced on April 7, 2026 and has no expiration date. Repurchases may be made from time to time through open market purchases, privately negotiated transactions or other transactions, including pursuant to Rule 10b5-1 trading plans, subject to market conditions, applicable legal requirements and other factors.

During fiscal year 2026, we repurchased approximately 0.2 million shares of our common stock for an aggregate purchase price of$7.1 million, including repurchases effected pursuant to a Rule 10b5-1 trading plan, at an average price per share of$29.95. The repurchased shares were retired upon repurchase.

As of August 31, 2026,$42.9 million remained available for repurchases under the April 2026 Repurchase Program.

Note 13. Earnings Per Share

In connection with our IPO, Queso converted into a Delaware corporation and all of its 1,028,000 outstanding limited partnership units were converted on a 1-for-33.858 basis into an aggregate of 34,805,541 shares of our common stock. Additionally, all of the outstanding shares of the University’s common stock owned by persons other than the Company were converted into shares of the Company’s common stock at a ratio equal to one share of the Company’s common stock for each share of the University’s common stock. As a result, we issued 790,714 shares of the Company’s common stock upon the conversion of 790,714 outstanding shares of the University’s common stock, and the University is now an indirect wholly owned subsidiary of the Company. Further, with respect to the University’s outstanding share-based awards, we will issue shares of the Company’s common stock on aone-for-one basis upon the vesting of outstanding restricted stock units. Upon the future exercise of outstanding University stock options, we may, at our election, either repurchase such options for cash, in which case no shares of University or Company common stock would be issued, or issue shares of the Company’s common stock on aone-for-one basis in exchange for the shares of University common stock that would have been received upon exercise. We have applied retrospective presentation to our earnings per share for all periods presented in our financial statements such that weighted-average shares outstanding reflect these conversions resulting from the IPO.

We calculate earnings per share by dividing net income attributable to Phoenix Education Partners, Inc. by the weighted-average shares outstanding. For diluted weighted-average shares outstanding, we calculate the dilutive effect of share-based awards by applying the treasury stock method.

The components of basic and diluted earnings per share consist of the following for the respective periods:

(1)

Diluted shares during fiscal year 2026 excludes 0.5 million performance share units that are contingently issuable shares as they vest upon achievement of performance conditions. Additionally,1.7 million outstanding stock options and less than 0.1 million restricted stock units are excluded from fiscal year 2025 because such awards were contingently issuable shares as they vested upon certain changes in control or achievement of performance conditions. See Note 1. Nature of Operations and Significant Accounting Policies for discussion of our IPO.

(2)

For fiscal year 2026, less than 0.1 million of our restricted stock units were excluded from the diluted income per share calculation as their inclusion would have been anti-dilutive.

Note 14. Share-Based Awards and Savings Plan

Share-Based Awards

Prior to our IPO, the University granted nonqualified stock options and restricted stock units (“RSUs”) under the UOPX Plan. We did not grant any awards under the UOPX Plan during fiscal year 2026 and do not expect to grant additional awards under that plan. In connection with the IPO, the Phoenix Education Partners, Inc. 2025 Omnibus Incentive Plan and the Phoenix Education Partners, Inc. Employee Stock Purchase Plan became effective.

Upon vesting of outstanding UOPX Plan RSUs, we issue shares of the Company’s common stock on aone-for-one basis. Upon exercise of outstanding UOPX Plan stock options, we may elect either to repurchase the options for cash or to issue shares of the Company’s common stock on aone-for-one basis in exchange for the shares of University common stock otherwise issuable upon exercise.

University of Phoenix, Inc. Management Equity Plan

Stock Options

Under the UOPX Plan, stock options were granted at exercise prices equal to or exceeding the fair market value of the University’s common stock on the date of the grant and have contractual terms of five or ten years. The options contain service, performance and/or change-in-control vesting conditions.

IPO-related Modification

In connection with the IPO, we modified approximately 1.7 million outstanding UOPX Plan stock options that previously vested solely upon a change in control or ownership. As modified, approximately 0.9 million options vested upon completion of the IPO and approximately 0.8 million options vested on the first anniversary of the IPO, subject to continued service. The weighted-average fair value of the modified options as of the modification date was $21.69 per option resulting in total share-based compensation cost of$36.9 million. We recognized$35.1 million of this compensation cost during fiscal year 2026 and had$1.7 million of unrecognized compensation cost as of August 31, 2026, which is expected to be recognized over a period of less than one year.

We estimated the modification-date fair value using the Black-Scholes option-pricing model and the following weighted-average assumptions:

•

Stock price: $32.00 per share (IPO price)

•

Risk-free interest rate:3.8%

•

Volatility:35.6%

•

Dividend yield: zero due to stock option recipients’ expected participation in dividends

•

Term:1.1 years.

The following provides a summary of the University’s stock option activity:

(1)

Stock options may be exercised or settled through various methods. We can elect to repurchase options for cash. Otherwise, option exercises may be settled through net share settlement, cash exercises, or broker-assisted sell-to-cover transactions, all of which result in differing cash proceeds to the Company. We received$2.0 million of cash from stock option exercises during fiscal year 2026.

Restricted Stock Units

UOPX Plan RSUs generally vest over three years, with 50% vesting based on financial performance measures and the remaining 50% vesting ratably over three years, in each case subject to continued service. Of the approximately 0.1 million unvested UOPX Plan RSUs at August 31, 2025, substantially all vested during fiscal year 2026 and an immaterial number were forfeited. As of August 31, 2026, there wasno related unrecognized compensation cost. The fair value of RSUs that vested during fiscal years 2026 and 2025 was$1.7 million and $2.0 million, respectively.

Phoenix Education Partners, Inc. 2025 Omnibus Incentive Plan

The Omnibus Incentive Plan permits the grant of stock options, restricted stock, RSUs, performance share units (“PSUs”) and other equity-based and cash-based awards. The plan reserved 5.9 million shares for issuance and as of August 31, 2026,3.9 million shares remained available for future grants.

Restricted Stock Units

In connection with the IPO, we granted approximately 1.3 million RSUs with a grant-date fair value of $32.00 per unit. We also granted an immaterial number of additional RSUs after the IPO. The RSUs generally vest overone- orthree-year periods, subject to continued service.

The following provides a summary of RSU activity under the Omnibus Incentive Plan:

As of August 31, 2026, we had$29.2 million of unrecognized compensation cost related to nonvested RSUs, which is expected to be recognized over a weighted-average period of approximately 2.1 years.

We also granted approximately 0.1 million unrestricted shares of common stock in connection with the IPO with a grant-date fair value of $32.00 per share. These awards fully vested and all related share-based compensation cost was recorded on the grant date.

Performance Share Units

PSUs granted under the Omnibus Incentive Plan generally vest following completion of the applicable performance period based on continued service and achievement of specified performance conditions. PSU awards may also contain market conditions. Compensation cost for awards containing performance conditions is recognized when achievement of the applicable performance conditions is probable, based on the number of awards expected to vest. Compensation cost associated with market conditions is recognized over the requisite service period, regardless of whether the market condition is ultimately achieved, provided the requisite service is rendered.

In connection with the IPO, we granted approximately 0.5 million PSUs with a grant-date fair value of $33.50 per target unit. For these awards, the number of shares ultimately issuable ranges from 0% to 200% of the target units based on achievement of specified performance conditions measured during the third year following the grant date. The awards also contain a relative total shareholder return market condition that may increase or decrease the number of units earned by up to 15%, subject to the overall 0% floor and 200% maximum. We also granted an immaterial number of additional PSUs after the IPO.

The following summarizes PSU activity under the Omnibus Incentive Plan, presented at target:

As of August 31, 2026, we had$11.5 million of unrecognized compensation cost related to nonvested PSUs, which is expected to be recognized over a weighted-average period of approximately 2.0 years.

Employee Stock Purchase Plan

The ESPP permits eligible employees to purchase shares of the Company’s common stock through payroll deductions during specified offering periods, subject to the terms and limitations of the ESPP. As of August 31, 2026, approximately 1.2 million shares have been reserved for issuance under the ESPP, the first offering period had not commenced and no shares had been issued.

Share-based Compensation and Associated Tax Benefits

The following details share-based compensation for the respective periods:

During fiscal year 2026, we realized $7.3 million of income tax benefits from stock option exercises in our provision for income taxes.

Savings Plan

We sponsor a defined contribution 401(k) savings and investment plan under which eligible employees may contribute a portion of their pre-tax compensation, subject to statutory limitations. We make discretionary matching contributions up to specified levels of eligible compensation. Matching contributions were$6.7 million and$6.8 million for fiscal years 2026 and 2025, respectively.

Note 15. 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 of 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 was set to increase 3% per year until 2030. In December 2025, PEOC amended the agreement to, among other things, lower the annual increase from 3% to 1.5% for the remaining contract term. As of August 31, 2026, our remaining contractual obligation pursuant to the agreement, as amended, was approximately$9 million.

Letter of Credit

As of August 31, 2026, we had a$28.4 million outstanding letter of credit under our Revolving Facility supporting a sublease. This letter of credit was issued during the third quarter of fiscal year 2026 to replace a cash-collateralized letter of credit. The replacement released the cash collateral supporting the prior letter of credit, thereby reducing restricted cash, while the outstanding letter of credit reduces availability under the Revolving Facility.

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 August 31, 2026, 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

During fiscal year 2026, we experienced a cybersecurity incident involving the Oracle E-Business Suite software platform (“Oracle EBS”) in which an unauthorized third party exploited a previously unknown software vulnerability and accessed certain data maintained in our Oracle EBS environment, including personal information relating to numerous individuals. The incident did not impact our business operations or student programming. We have remediated the vulnerability, provided or are providing required notifications to affected parties and applicable regulatory entities, and implemented measures intended to reduce the risk of a similar incident occurring in the future.

In connection with this cybersecurity incident, putative class action lawsuits were filed against the University, Oracle Corporation and other defendants and were subsequently consolidated with other lawsuits arising from the same Oracle EBS software vulnerability into a single matter. The consolidated putative class action is titled In re Oracle Corporation Data Breach Litigation and is pending in the United States District Court for the Western District of Texas (Case No. 1:25-cv-01805).

The complaint generally alleges that the University and other co-defendants failed to protect the plaintiffs’ confidential information in violation of various federal and state laws. The University denies these allegations. In June 2026, the University, Oracle Corporation and certain other co-defendants filed motions to dismiss, and Oracle Corporation also filed a motion to strike the class allegations, which the University joined. These motions remain pending before the court.

In October 2026, the University and the plaintiffs reached an agreement in principle to resolve the claims against the University. Under the proposed settlement, the University expects to pay approximately $7.0 million. The proposed settlement remains subject to the execution of definitive settlement documentation, court approval and other customary conditions. Accordingly, we have accrued the estimated settlement amount as of August 31, 2026.

During fiscal year 2026, we recorded$12.2 million of expense associated with this cybersecurity incident, consisting of the estimated settlement amount described above and $5.2 million of incident response and related costs, which principally include costs to notify affected parties, fees from third-party cybersecurity firms and legal fees related to the incident response and litigation defense. These amounts are included in strategic alternatives, restructuring and other on our consolidated statements of income.

We maintain a comprehensive cybersecurity insurance policy that may provide coverage for certain costs associated with the incident, including incident response, investigation and remediation costs, potential regulatory matters, business interruption and costs associated with investigating, defending, and resolving legal proceedings related to the incident, subject to deductibles, exclusions, policy limits and the insurer’s determination of coverage.

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 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 damages on behalf of the plaintiff and other members of the class.

During fiscal year 2026, the parties participated in mediation and subsequently agreed to a proposed settlement. In connection with the proposed settlement, the federal action was voluntarily dismissed in July 2026 and the plaintiff refiled the action in the Circuit Court of Sangamon County, Illinois on July 21, 2026. On September 22, 2026, the court granted preliminary approval of the proposed settlement. The settlement remains subject to final court approval, with a final approval hearing currently scheduled for November 20, 2026.

We have accrued an immaterial amount representing our estimate of probable loss associated with this matter. It is reasonably possible that the ultimate resolution of this matter could result in a loss in excess of the amount accrued; however, based on information currently available, we do not believe that any such additional loss would be material to our consolidated financial position, results of operations or cash flows.

Note 16. Regulatory Matters

Accreditation and Student Financial Aid

University of Phoenix has been accredited by the Higher Learning Commission (“HLC”) since 1978 and holds other programmatic accreditations. In fiscal year 2023, the accreditation of the University was reaffirmed by the HLC through the 2032-2033 academic year.

All U.S. federal student financial aid programs are established by Title IV of the Higher Education Act and regulations promulgated thereunder. The Higher Education Act specifies the manner in which the Department of Education reviews institutions for eligibility and certification to participate in Title IV programs and enters into a PPA with institutions. In August 2025, the Department of Education renewed the University’s PPA and approved the recertification of the University’s continued participation in the Title IV programs through June 30, 2031.

Borrower Defense to Repayment (“BDR”)

Under the Higher Education Act, the Department of Education’s borrower defense to repayment regulations (the “BDR Rules”) 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 in certain circumstances 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 certain 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.

Beginning in June 2020, the Department of Education began sending borrower defense applications to the University as part of the fact-finding process and providing the University an opportunity to respond. The University received applications through April 2024 and, beginning in December 2025, began receiving additional applications. The University has submitted, or intends to submit, substantive responses to these applications.

In September 2023, the Department of Education announced that it had approved more than 1,200 BDR claims and discharged nearly $37 million of federal student loans from borrowers who made claims regarding a University ad campaign that ran from 2012 to 2014. The Department of Education further indicated its intent to commence a recoupment effort against the University for approximately $37 million in discharged loans. As of August 31, 2026, the Department of Education has not yet commenced any such recoupment action. The discharged loans related to these BDR claims also appear to have been subject to automatic discharge under the terms of BDR-related litigation, and the Department of Education has stated that such automatic discharges would not serve as a basis for recoupment from institutions. It remains possible, however, that the Department of Education could attempt to seek recoupment of such discharged amounts on another basis, and we cannot predict the timing or extent of such recoupment efforts if pursued.

While the University believes it has factual and procedural defenses to the BDR claims, because of the many questions of fact and law that may arise, the outcome of such claims is uncertain. We cannot predict how the Department of Education will evaluate or adjudicate the claims or whether it will seek recoupment of amounts associated with loans that may ultimately be discharged. Based on the information currently available, we cannot estimate a reasonably possible range of loss associated with BDR claims and, accordingly, we have not accrued any liability associated with such claims.

Financial Responsibility Composite Score

To participate in Title IV programs, an eligible institution must satisfy financial responsibility standards prescribed by the Department of Education, including a composite score based on measures of financial viability, capital resources and profitability. The maximum composite score is 3.0 and an institution generally is considered financially responsible without additional Department of Education oversight if its composite score is at least 1.5. Institutions with lower composite scores may be subject to additional requirements, including restrictions on participation in Title IV programs and requirements to provide financial protection to the Department of Education.

The Department measures the financial responsibility of the University based on our consolidated financial statements, and our fiscal year 2026 composite score was 3.0.

90/10 Rule

To remain eligible to participate in Title IV programs, proprietary institutions of higher education must comply with the “90/10 Rule” under the Higher Education Act and derive no more than 90% oftheir cash basis revenue from Federal education assistance funds, asdefined in the rule. An institution that exceeds the 90% threshold for two consecutive fiscal years would lose eligibility to participate in Title IV programs. The University’s 90/10 Rule percentagewas 88.6% for fiscal year 2026.

Student Loan Cohort Default Rates

To remain eligible to participate in Title IV programs, an educational institution’s student loan cohort default rates must remain below certain specified levels. An educational institution loses eligibility to participate in Title IV programs if its cohort default rate equals or exceeds 40% for any given year or 30% for three consecutive years. The University’s cohort default rate for the 2023 federal fiscal year was less than 1%, principally due to the Department’s federal loan payment pause initiated following the COVID-19 pandemic.

Note 17. Segment Reporting

We operate as asingle operating and reportable segment because our chief operating decision maker (“CODM”), Christopher Lynne, Chief Executive Officer of the Company, assesses performance and allocates resources based on our consolidated financial results.

Our CODM assesses performance and allocates resources based on profitability measures, including operating income, reported in our consolidated statements of income. Our CODM considers actual results relative to prior periods, budgets and forecasts when making resource allocation decisions and assessing performance. Total assets are evaluated at the consolidated level and, therefore, are not separately presented below.

No individual customer accounted for more than 10% of our consolidated net revenue infiscal years 2026 and 2025.

The following provides information on net revenue, significant expenses and net income for our single reportable segment during the respective periods:

(1)

Theincrease in compensation and related costs during fiscal year 2026 compared to fiscal year 2025 was principally due to share-based compensation resulting from our IPO. See Note 14. Share-Based Awards and Savings Planfor additional 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.

Note 18. Subsequent Events

Acquisition of Fuel50

On September 30, 2026, we acquired all of the outstanding stock of Fuel50 Inc. (“Fuel50”), an AI-powered workforce intelligence platform, for base cash consideration of $31.5 million, subject to customary adjustments for cash, indebtedness, working capital and transaction expenses, plus contingent consideration up to $8.5 million based on the achievement of specified performance milestones through calendar year 2027. The acquisition advances our strategy to expand skills intelligence, career mobility and workforce transformation capabilities and strengthen our ability to connect employer workforce needs with education and skills development.

We will account for the acquisition as a business combination in our first quarter of fiscal year 2027. Given the recent acquisition date, we are evaluating the fair value of assets acquired and liabilities assumed and have not yet completed the purchase price allocation. The operating results of Fuel50 will be included in our consolidated financial statements from the date of acquisition and its results are not expected to be material to our consolidated results of operations.

Voluntary Separation Program and Other Workforce Reductions

In September 2026, we completed the selection and approval process for a voluntary separation program (the “VSP”) offered to certain employees. Approximately 120 employees were accepted for participation in the VSP and have received or will receive severance and other separation benefits in excess of benefits provided under our existing termination benefit arrangements. We expect to recognize approximately$9 million of severance and other separation costs from this program in the first quarter of fiscal year 2027. The related benefits are generally payable in a lump sum upon each participant’s termination, and substantially all of the related cash payments are expected to occur during the first quarter of fiscal year 2027. We didnot have any liability associated with this program as of August 31, 2026.

Subsequent to August 31, 2026, we also initiated certain involuntary workforce reductions that are separate from the VSP and are expected to affect approximately 50 employees. We expect to incur approximately$2 million of severance and other separation costs from these actions, substantially all of which are expected to be recognized and paid during the first quarter of fiscal year 2027. We didnot have any liability associated with these reductions as of August 31, 2026.