Nobel Learning Communities, Inc. History

Address:

1400 North Providence Road
Media, Pennsylvania 19063
U.S.A.

Telephone: (610) 891-8200
Toll Free: 888-996-6235
Fax: (610) 891-8200

Public Company
Incorporated: 1984 as Rocking Horse Child Care Centers of America Inc.
Employees: 3,800
Sales: $109.76 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: NLCI
NAIC: 61111 Elementary and Secondary Schools; 62441 Child Day Care Services

Company Perspectives:

The company's mission is to create unique educational environments built on sound research, qualified instruction, and local communities of learning that foster academic excellence, instill a love of active learning, and provide experiences that enable all students to acquire a foundation of skills for lifelong achievement ... increasing value to our families, our shareholders, and our employees. We nurture creativity and exploration in learning; respect children, parents, employees, and the environment; foster collaboration in our community of learners; meet the needs of children and the expectations of their parents; provide educational programs that consistently meet quality assurance criteria; develop and improve instructional delivery of our programs; demonstrate accountability and effectiveness to our constituencies; build and maintain our learning communities on a foundation of integrity and high standards. Key Dates:

Key Dates:

1984:: Rocking Horse Child Care Centers of America is founded.
1988:: Following the company's first acquisition campaign, there are 41 Rocking Horse child-care centers in operation.
1992:: A.J. Clegg is hired as chairman and chief executive officer.
1993:: Rocking Horse changes its name to Nobel Education Dynamics, Inc.
1998:: Renamed Nobel Learning Communities, Inc., the company acquires three schools catering to the learning-challenged.
1999:: Nobel Learning acquires five specialty high schools from Houston Learning Academy.

Company History:

Nobel Learning Communities, Inc. operates private schools that serve students from preschool through high school. The company runs approximately 150 schools in 14 states, including its largest school operation, the California-based Merryhill School system, which comprised 30 preschools, elementary schools, and middle schools. The company builds and acquires its educational facilities in clusters, thereby creating a network within a community that can accommodate a child throughout his or her primary and secondary education. Nobel schools are generally open between 6:30 AM and 6:00 PM, providing child supervision for the company's target customers, single-parent and double-income families. Nobel schools operate under various names, including Merryhill School, Chesterbrook Academy, Evergreen Academy, Paladin Academy, and Another Generation Preschool.

Origins

It took roughly a decade before Nobel arrived at the strategy, the corporate structure, and the leader capable of achieving consistent success. The years in between were difficult, a period when Nobel operated under a different name and pursued a different corporate mission. Nobel began operating in 1984 as Rocking Horse Child Care Centers of America Inc., a Cherry Hill, New Jersey-based operator of private child-care centers.

Rocking Horse began modestly, with a single child-care center that recorded $48,000 in revenue during its first year of operation. Rocking Horse did not expand until April 1986, but once it began developing into a chain of day-care centers, the company did so with fervor. By the end of 1986, the company's revenue total had increased mightily, swelling to nearly $3 million as it began an aggressive acquisition campaign. Between April 1986 and October 1987, Rocking Horse acquired 31 child-care centers and constructed two new facilities, extending its operating territory to an eight-state area. The company's energetic growth, however, did not translate into profitability. Rocking Horse posted a net loss of $3.2 million in 1986, $300,000 more than it collected in revenue.

Despite the loss, the company continued to expand into the late 1980s. Rocking Horse raised $5 million in a public offering of stock in October 1987, the capital from which was used, as its president, John W. Quaintance, told the Philadelphia Business Journal in the October 12, 1987 issue, 'to continue our acquisition strategy.' By the end of 1988, the company operated 41 of what it called 'preschool learning centers.' There were ten in each Georgia and Florida, eight in South Carolina, four each in Illinois and Pennsylvania, three in New Jersey, and one each in Maine and Massachusetts. Rocking Horse held licenses to accommodate 5,538 children, allowing an average of 135 children per center. The company charged between $43 to $140 per week for its child-care services, the nature of which represented the hidden and unexploited strength of the chain. To distinguish itself from the scores of other child-care companies in existence, Rocking Horse used professionally developed educational and recreational programs administered by trained supervisors and teachers. By tailoring itself as more than a traditional day-care provider, the company's management hoped to attract parents and their children away from the competition, but the strategy never worked, at least not financially. By the end of the decade, Rocking Horse was a company suffering from profound financial problems.

As Rocking Horse entered the 1990s, the signs of financial distress were alarmingly abundant. Saddled with an extremely large bank loan it could not pay, Rocking Horse had difficulty convincing its bank to approve a lease on a company vehicle. The company had a negative net worth of $3.8 million and was reeling from the effects of successive annual loses. After Rocking Horse defaulted on its loans, the accounting firm of Coopers & Lybrand issued a statement based on the child-care provider's 1991 results, stating that it was unsure if Rocking Horse had the capacity to survive.

Clegg Leads Revival in 1992

The task of rescuing Rocking Horse fell to a new management team headed by A.J. 'Jack' Clegg, whose arrival marked the beginning of a new and decidedly more successful era. Clegg's professional background included the 1979 founding of Empery Corporation, an operator of cable television and printing business. At Empery, Clegg served as chairman, president, and chief executive officer from 1979 to 1992, but his duties at Empery represented only a fraction of his business background in the decade preceding his arrival at Rocking Horse. Between 1983 and 1993, Clegg served as chairman and chief executive officer of TVC, Inc., a distributor of cable television components. During the same period he also held identical titles at Design Mark Industries, a manufacturer of electronic senswitches. Clegg served as chairman and chief executive officer of Globe Ticket and Label Company from 1984 to 1991 and was on the board of directors of Ferguson International Holdings, PLC. In the academic world, he was a member of the Advisory Board of Drexel University, an honor bestowed on the then-50-year-old Clegg in 1989.

When Clegg joined Rocking Horse in May 1992, he inherited a company that had lost $10.2 million during the previous two years. The losses were out of control, delivering staggering blows to a company that only generated roughly $30 million in annual sales. Clegg worked quickly to trim the company's liability, reducing Rocking Horse's debt by nearly $7 million within a year. He raised money for much-need restructuring through private placements, initially raising $2 million by selling stock and private holdings and raising another $2.5 million in 1993. Thanks to Clegg's restorative efforts, Rocking Horse reversed it losses, going from losing $3.8 million in 1991 to posting a profit of $1.8 million in 1992. Revenues slipped during the first stages of the turnaround, dropping from $34.7 million in 1991 to $33.5 million in 1992--a consequence of having to divest several child-care centers--but the company was on the mend. After the restructuring and divestitures, the company operated 44 child-care centers in 11 states, with the most significant addition in northern California where Rocking Horse operated 29 schools called the Merryhill County Schools. As Clegg looked beyond the immediate need to arrest the company's money-losing ways, the Merryhill system would serve as his blueprint for the future.

Aside from Clegg's focus on financial matters, the survival of Rocking Horse depended on another contribution from its new chairman, president, and chief executive officer. In the course of inspecting Rocking Horse's properties, Clegg visited one of the company's Merryhill schools, then operating as a division of Rocking Horse. During his visit, Clegg noted of the focus on offering curriculum-based programs to the children. Rather than merely offering custodial care, Rocking Horse--Clegg realized--was offering something beyond the services of baby sitter. 'The company never really took advantage of the fact that it had something relatively unique,' Clegg told the Philadelphia Business Journal in a May 23, 1997 interview. Educational programs represented Rocking Horse's distinguishing mark, a specialty that Clegg intended to use as the emphasis underpinning Rocking Horse's expansion.

With a clear vision of what the company should become, Clegg began making wholesale changes. He began converting the company's child-care centers into curriculum-based preschools, a shift in strategy that called for a new corporate title. In 1993, Rocking Horse Child Care Centers of America was dropped in favor of Nobel Education Dynamics, Inc. Once the company's financial health was restored, Clegg also began acquiring and expanding preschools, elementary, and middle schools, a mode of expansion that touched off in 1994. An integral aspect of the company's expansion strategy involved grouping its properties around each other. Clegg did not try to establish a presence in a wide geographic area; instead, he only moved into new territory if he was able to acquire additional nearby properties, a strategy he likened to playing the board game Monopoly. 'If we go into a brand-new area,' Clegg explained in his May 23, 1997 interview with the Philadelphia Business Journal, we will buy [an existing] school and use that school base to build clusters.' According to the plan, the acquisition or construction of a preschool was followed by the addition of other preschools within the same vicinity. After establishing a network of preschools in a given area, the company next built centrally located elementary and middle schools, thereby creating a system that could accommodate the same pupil through his or her preschool, elementary, and middle-school years.

Adhering to its blueprint for expansion, Nobel began acquiring facilities within roughly the same geographic area that Rocking Horse had penetrated. By the end of 1995, the company had 101 facilities in operation within an 11-state region. The process of acquiring and converting preschools into accredited private elementary schools was in full swing, as Clegg targeted the children of single-parent families and two-income families to fill his growing number of educational facilities. Nobel schools provided child supervision from 6:30 AM to 6:00 PM, a schedule that conformed to the work schedule of most parents. Public schools, by contrast, typically provided child supervision 8:30 AM to 3:00 PM, which generally required single parents or double-income parents to pay for after-school child-care services. The savings partially offset Nobel's average tuition of $5,500, a fee that was 17 percent below the average $6,630 tuition at private nonparochial schools. Educationally, Nobel schools also compared favorably to other private schools, with Nobel students scoring one to two grades above their grade level, according to the Stanford Achievement Test, a standardized reading and math test.

Nobel's operating hours, its curriculum, and its tuition fees distinguished the company from many of its competitors. The company presented itself as an intriguing alternative to a specific sector of the market, leading one industry analyst to remark, 'Noble is the first private educator to provide solutions at a price the middle class can afford,' as quoted in the January 1996 issue of Money magazine. Importantly, Clegg's approach to education operated on sound financial footing as well. The company's primary schools earned 22 percent profit margins, a figure that was achieved largely because Nobel operated with minimal overhead and without burdensome bureaucracy. Nobel's facilities were modest structures without the manicured lawns and architecturally elegant buildings found at the most expensive private schools. Nobel schools typically employed fewer support personnel that their private and public counterparts, and teachers' salaries averaged 41 percent less than the $37,000 average salary of public school teachers. Despite the lower pay, teachers welcomed the opportunity to work at Nobel, where average class sizes were smaller than at public schools--17 students per class versus 24 students per class--and where the pupils were generally more committed to learning, largely because the schools had the ability to turn away children with disciplinary problems.

With a proven business model, Clegg entered the latter half of the 1990s ready to expand his concept by creating clusters of Nobel communities. By the beginning of 1996, 13 of company's properties in California had been converted to elementary schools catering to students from kindergarten through the eighth grade. Clegg intended on nearly tripling the number of converted schools during the next two years, as well as converting approximately 70 percent of Nobel's 51 preschools to kindergarten through second-grade schools. Clegg also announced aggressive acquisition plans, endeavoring to dramatically increase the $44 million in sales the company recorded at the end of 1995.

Late 1990s Diversification

As Clegg pursued his ambitious expansion plans, another change in the company's corporate title was needed to more accurately reflect the strategy driving it forward. In 1998, the company adopted the name Nobel Learning Communities, Inc., indicative of Clegg's desire to serve the educational needs of all children within a given community. Toward this end, the company's acquisition campaign enabled Clegg to create a more entrenched position within Noble communities--between 1994 and 1999, 68 schools were acquired--but the last years of the decade also saw Nobel target other segments of a community's student base. In 1998, the company formed a joint venture with Developmental Resource Center, Inc. (DRC), owned by Dr. Deborah Levy, a developer of special education programs. Under the terms of the agreement, Paladin Academy, LLC was formed, a joint venture project 80-percent owned by Nobel and 20-percent owned by DRC. The joint venture gave Nobel control of three schools in Florida that specialized in full-day programs, summer camps, testing services, and clinics for kindergarten through 12th-grade students challenged by learning disabilities such as dyslexia and attention deficit disorder. In 1999, Nobel added three more Paladin Academy locations, offering the specialized educational programs in the classrooms of existing Noble schools. Based on the performance of the new Paladin Academy schools, the company planned to open additional schools in areas where Nobel schools were clustered.

Nobel also moved in several other new directions in 1999, as Clegg shaped the company into a comprehensive education facility for the next century. Late in 1999, Noble began offering tutorial and diagnostic programs under the name Nobel Learning Advantage. The programs, the company planned to market to Nobel students and non-Nobel students both, were offered at two of Nobel's schools in 1999, with a company-wide rollout scheduled to begin in January 2000. Nobel entered the charter school market in 1999 as well, facilitating a nonprofit entity's application for a charter from the School District of Philadelphia. Under the terms of a five-year management contract, Nobel agreed to provide administrative and construction management services to the charter school, which funded its own operations through payments from the School District of Philadelphia. The last year of the decade also saw Nobel acquire the Houston Learning Academy, an operator of five specialty high schools in Houston, Texas. The schools offered half-day curriculum programs focused on individualized attention.

As Nobel prepared for further expansion in the 21st century, the achievements of the 1990s suggested energetic growth lay ahead. The company eclipsed the $100-million-in-sales mark in 1999, recording $109 million in sales, more than twice the total collected five years earlier. With the additions to the company's operating scope made in 1999, the opportunities for growth increased commensurately, positioning Nobel to attract students of all ages and abilities within a given community. After righting a floundering enterprise, Clegg demonstrated the ability and willingness to expand aggressively and strategically, a behavior he promised to display in the years ahead.

Principal Subsidiaries: Merryhill Schools, Inc.; Merryhill Schools Nevada, Inc.; Nedi, Inc.

Principal Competitors: KinderCare Learning Centers, Inc.; Bright Horizons Family Solutions, Inc.; Edison Schools, Inc.

Nobel Learning Communities, Inc. History

Company Perspectives:

Key Dates:

Company History:

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