Dive Brief:

• Enrollment gains continued at Strategic Education's for-profit Strayer and Capella university campuses during the second quarter, a year after their parent companies merged in a $1.9 billion deal.
• Capella's competency-based education (CBE) program, FlexPath, was a significant contributor to the increases, executives told analysts this week. They suggested they could expand that offering to Strayer.
• The college operator expects to open more physical locations for both institutions this year, and it could add one co-branded site.

Dive Insight:

Strategic Education reported its results a day after online program manager 2U announced that growing competition online is causing it to shift focus from exclusively high-end graduate programs to a wider array of offerings and more contract flexibility. 

One area of growth for both companies was shorter-term programs. Nick Hammerschlag, president of Entangled Group, told Education Dive earlier this week that's "where the market is going." 

To that point, Strategic Education's nondegree segment — which includes a handful of coding boot camps and software design programs — recovered from a $1 million operating loss a year ago to generate returns for the first time during the quarter.

Executives also discussed their progress integrating the two institutions.

One way is through the use of Strayer's artificial intelligence student support features at the online Capella. Among them are a virtual assistant chat function and video feedback. They expect to see more student engagement and lower drop rates as a result. 

Both institutions are expanding their footprints, and executives told analysts the company might experiment with a co-branded location this year. Capella is beginning to add ground-based sites, starting with one in Atlanta and another expected for Orlando, Florida, during the third quarter. They will be spaces for students to meet, study and access academic support.

"That's likely to be the largest revenue opportunity over the next year or two," Strategic Education CEO Karl McDonnell said during the call.

Strayer is expected to open a handful of new campuses in the second half of 2019. In a note emailed to Education Dive, Barrington Research analysts said the new campuses are "significantly smaller" than those the university added from 2001 to 2012, at around 3,000 square feet each compared to more than 20,000 square feet.

Strayer's enrollment rose 11.5% year-over-year during the second quarter to 52,253 students, on par with gains reported in the first quarter. But bigger scholarships and a "shift to lower-paying corporate-sponsored students" are expected to keep revenue per student flat for 2019, Strategic Education Chief Financial Officer Daniel Jackson said on the call. 

Capella posted more modest enrollment gains, up 1.6% for the period to 38,392 students, down from a 2.9% increase in the first quarter. A 2% rise in tuition at that institution is expected to be offset by more corporate-sponsored students and growth in the lower-cost FlexPath program.

FlexPath has been a strong driver of student enrollment for Capella, with new student enrollment in the program increasing by 21% for the period. Total new student enrollments at Capella increased by 8%.

Interest is growing across higher ed in alternative programs like CBE. 

"The company is clearly advantaged by having the FlexPath product in our portfolio," McDonnell said.