##### 



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the Quarterly Period Ended June 30, 2007
 OR
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the transition period from                      to
 Commission file number: 001-32419
 optionsXpress Holdings, Inc.
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    20-1444525
(I.R.S. Employer
Identification Number)
 311 W. Monroe, Suite 1000, Chicago, Illinois
60606     (312) 630-3300
   þ o
  þ o o
  o þ




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Table of Contents
  
  Part I  FINANCIAL INFORMATION
    
    
    3Item 1.  Condensed Consolidated Financial Statements
    
    
    3Condensed Consolidated Statements of Financial Condition
    
    
    3Condensed Consolidated Statements of Operations
    
    
    4Condensed Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3.  Quantitative and Qualitative Disclosures about Market Risk
    
    
    14Item 4.  Controls and Procedures
    
    
    15Part II  OTHER INFORMATION
    
    
    16Item 1.  Legal Proceedings
    
    
    16Item 4.  Submission of Matters to a Vote of Security Holders
    
    
    16Item 6.  Exhibits
    
    
    16Signatures
    
    
    16EX-31.1 Section 302 Certification of the CEOEX-31.2 Section 302 Certification of the CFOEX-32.1 Section 906 Certification of the CEO and the CFO
 2




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##### 



Part I  FINANCIAL INFORMATION
 
 Item 1.  Condensed Consolidated Financial Statements
 
 optionsXpress Holdings, Inc.
Condensed Consolidated Statements of Financial Condition
(Unaudited)
 June 30,
    
    
    December 31,2007
    
    
    2006AssetsCash and cash equivalents
    
    $
    15,012
    
    
    $
    76,590Short-term investments
    
    
    139,125
    
    
    
    118,075Cash and investments segregated in compliance with federal regulations
    
    
    439,631
    
    
    
    281,288Receivables from brokerage customers, net
    
    
    161,178
    
    
    
    139,080Receivables from brokers, dealers and clearing organizations
    
    
    24,360
    
    
    
    21,601Deposits with clearing organizations
    
    
    21,328
    
    
    
    38,115Fixed assets, net
    
    
    12,865
    
    
    
    6,619Goodwill
    
    
    28,688
    
    
    
    79Other intangible assets, net
    
    
    4,350
    
    
    
    Other assets
    
    
    12,884
    
    
    
    6,077Total assets
    
    $
    859,421
    
    
    $
    687,524Liabilities and stockholders equityLiabilities:Payables to brokerage customers
    
    $
    605,760
    
    
    $
    476,890Payables to brokers, dealers and clearing organizations
    
    
    5,447
    
    
    
    17,422Accounts payable and accrued liabilities
    
    
    16,287
    
    
    
    8,748Current and deferred income taxes
    
    
    1,750
    
    
    
    3,636Total liabilities
    
    
    629,244
    
    
    
    506,696Stockholders equity:Common stock, $0.0001 par value, 250,000 shares authorized; June 30,
2007  62,961 shares issued and outstanding, December 31, 2006 
62,386 shares issued and outstanding
    
    
    6
    
    
    
    6Preferred stock, $0.0001 par value, 75,000 shares authorized; none issued
    
    
    
    
    
    
    Additional paid-in capital
    
    
    105,913
    
    
    
    93,183Accumulated other comprehensive income
    
    
    63
    
    
    
    28Retained earnings
    
    
    124,195
    
    
    
    87,611Total stockholders equity
    
    
    230,177
    
    
    
    180,828Total liabilities and stockholders equity
    
    $
    859,421
    
    
    $
    687,524
 See accompanying notes
 3




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optionsXpress Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Commissions
    
    $
    36,555
    
    
    $
    32,365
    
    
    $
    70,311
    
    
    $
    64,452Other brokerage-related revenue
    
    
    8,879
    
    
    
    8,430
    
    
    
    16,969
    
    
    
    17,394Interest revenue and fees
    
    
    15,148
    
    
    
    6,420
    
    
    
    29,283
    
    
    
    11,648Interest expense
    
    
    (1,624
    )
    
    
    
    
    
    
    (3,200
    )
    
    
    Net interest revenue and fees
    
    
    13,524
    
    
    
    6,420
    
    
    
    26,083
    
    
    
    11,648Other income
    
    
    442
    
    
    
    96
    
    
    
    765
    
    
    
    255Total revenues
    
    
    59,400
    
    
    
    47,311
    
    
    
    114,128
    
    
    
    93,749Expenses:Brokerage, clearing and other related expenses
    
    
    4,667
    
    
    
    5,900
    
    
    
    9,497
    
    
    
    11,627Compensation and benefits
    
    
    6,771
    
    
    
    5,083
    
    
    
    12,972
    
    
    
    9,890Advertising
    
    
    3,455
    
    
    
    1,676
    
    
    
    7,016
    
    
    
    3,552Quotation services
    
    
    1,947
    
    
    
    1,461
    
    
    
    3,661
    
    
    
    2,760Depreciation and amortization
    
    
    1,320
    
    
    
    805
    
    
    
    2,586
    
    
    
    1,525Technology and telecommunications
    
    
    917
    
    
    
    713
    
    
    
    1,765
    
    
    
    1,426Other
    
    
    2,450
    
    
    
    2,199
    
    
    
    3,974
    
    
    
    3,892Total expenses
    
    
    21,527
    
    
    
    17,837
    
    
    
    41,471
    
    
    
    34,672Income before income taxes
    
    
    37,873
    
    
    
    29,474
    
    
    
    72,657
    
    
    
    59,077Income taxes
    
    
    14,703
    
    
    
    11,476
    
    
    
    28,206
    
    
    
    23,034Net income
    
    $
    23,170
    
    
    $
    17,998
    
    
    $
    44,451
    
    
    $
    36,043Earnings per common share:Basic
    
    $
    0.37
    
    
    $
    0.29
    
    
    $
    0.71
    
    
    $
    0.58Diluted
    
    $
    0.37
    
    
    $
    0.29
    
    
    $
    0.70
    
    
    $
    0.58Weighted-average number of common shares:Basic
    
    
    62,944
    
    
    
    62,319
    
    
    
    62,863
    
    
    
    62,266Diluted
    
    
    63,142
    
    
    
    62,611
    
    
    
    63,066
    
    
    
    62,606
 See accompanying notes.
 4




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optionsXpress Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Six Months EndedJune 30, 2007
    
    
    June 30, 2006Operating activitiesNet income
    
    $
    44,451
    
    
    $
    36,043Adjustments to reconcile net income to cash provided by (used in) operating
activities:Depreciation and amortization
    
    
    2,586
    
    
    
    1,525Stock-based compensation
    
    
    993
    
    
    
    567Net deferred income taxes
    
    
    1,080
    
    
    
    (187
    )Gain on investment in non-consolidated affiliate
    
    
    (145
    )
    
    
    (208
    )Loss from abandonment of fixed assets
    
    
    94
    
    
    
    Payments for lease incentives
    
    
    116
    
    
    
    Changes in operating assets and liabilities:(Increase) decrease in:Cash and investments segregated in compliance with federal
regulations
    
    
    (65,002
    )
    
    
    (1,836
    )Receivables from brokerage customers, net
    
    
    (21,332
    )
    
    
    Receivables from brokers, dealers and clearing organizations
    
    
    (2,435
    )
    
    
    (562
    )Deposits with clearing organizations
    
    
    16,787
    
    
    
    Other assets
    
    
    (4,690
    )
    
    
    (369
    )Increase (decrease) in:Payables to brokerage customers
    
    
    37,991
    
    
    
    1,434Payables to brokers, dealers and clearing organizations
    
    
    (11,975
    )
    
    
    Accounts payable and accrued liabilities
    
    
    5,349
    
    
    
    1,071Current income taxes payable
    
    
    (4,833
    )
    
    
    (1,086
    )Net cash provided by (used in) operating activities
    
    
    (965
    )
    
    
    36,392Investing activitiesPurchases of short-term investments
    
    
    (48,300
    )
    
    
    (34,950
    )Proceeds from sales and maturities of short-term investments
    
    
    27,250
    
    
    
    13,573Purchases and development of computer software
    
    
    (1,331
    )
    
    
    (1,244
    )Purchases of fixed assets
    
    
    (6,817
    )
    
    
    (2,210
    )Loans to affiliates and non-affiliates
    
    
    
    
    
    
    (972
    )Cash used in acquisition
    
    
    (24,135
    )
    
    
    Net cash used in investing activities
    
    
    (53,333
    )
    
    
    (25,803
    )Financing activitiesExercise of stock options
    
    
    410
    
    
    
    568Excess tax benefit for stock-based compensation
    
    
    155
    
    
    
    511Purchases through employee stock purchase plan
    
    
    22
    
    
    
    14Dividends paid
    
    
    (7,867
    )
    
    
    (6,231
    )Net cash used in financing activities
    
    
    (7,280
    )
    
    
    (5,138
    )Net increase (decrease) in cash and cash equivalents
    
    
    (61,578
    )
    
    
    5,451Cash and cash equivalents, beginning of period
    
    
    76,590
    
    
    
    10,258Cash and cash equivalents, end of period
    
    $
    15,012
    
    
    $
    15,709Supplemental cash flow information:Income taxes paid
    
    $
    31,928
    
    
    $
    23,784Interest paid
    
    
    3,200
    
    
    
    6Supplemental disclosure of non-cash activity:Non-cash unrealized gain on short-term investments
    
    $
    
    
    
    $
    12Non-cash foreign currency translation
    
    
    35
    
    
    
    (21
    )Issuance of common stock in acquisition
    
    
    11,150
    
    
    
    
 See accompanying notes.
 5




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optionsXpress Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Basis of Presentation and Nature of Operations
 Basis of Presentation
    Nature of Operations
   Recently Issued Accounting Pronouncements
 Fair
Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities.
 2. Business Acquisition
  6




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3. Summary of Significant Accounting Policies
  Income Taxes 
 Cash and Investments Segregated in Compliance with Federal Regulations
 Goodwill 
 Other Intangible Assets 
 Earnings Per Share 
 4. Stock-Based Compensation
   7




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5. Guarantees and Contingencies
        6. Goodwill and Other Intangible Assets
  Balance as of December 31, 2006
    
    $
    79Goodwill from the XpressTrade acquisition
    
    
    28,609Balance as of June 30, 2007
    
    $
    28,688
   8




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Original
    
    Accumulated
    
    CarryingValue
    
    Amortization
    
    ValueCustomer relationships
    
    $
    4,500
    
    
    $
    450
    
    
    $
    4,050Trade name
    
    
    300
    
    
    
    
    
    
    
    300$
    4,800
    
    
    $
    450
    
    
    $
    4,350
  7. Capitalization
 Common Stock
   Preferred Stock
  Dividends
   8. Regulatory Requirements
    9. Earnings Per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    23,170
    
    
    $
    17,998
    
    
    $
    44,451
    
    
    $
    36,043Weighted-average number of
common shares outstanding 
basic
    
    
    62,944
    
    
    
    62,319
    
    
    
    62,863
    
    
    
    62,266Effect of dilutive securities
    
    
    198
    
    
    
    292
    
    
    
    203
    
    
    
    340Weighted-average number
of common shares outstanding
 diluted
    
    
    63,142
    
    
    
    62,611
    
    
    
    63,066
    
    
    
    62,606Basic EPS
    
    $
    0.37
    
    
    $
    0.29
    
    
    $
    0.71
    
    
    $
    0.58Diluted EPS
    
    $
    0.37
    
    
    $
    0.29
    
    
    $
    0.70
    
    
    $
    0.58
 9




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Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
 FORWARD-LOOKING STATEMENTS
    
    
    the statements about our intention to pay dividends;
    
    the statements about future growth in online brokerage accounts, options trading and online options trading;
    
    the statement that on a per trade basis, brokerage, clearing and other related expenses generally decrease
as the number of customer trades increase;
    
    the statements about continuing to expand our product offering and our customer base and the costs
associated with such expansion;
    
    the statements concerning future growth of our futures business, international operations and brokersXpress;
    
    the statements concerning continued financing options; and
    
    the statements regarding scalability of our systems and the cost of increases.
 Results of Operations
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Results of OperationsTotal revenues (in thousands)
    
    $
    59,400
    
    
    $
    47,311
    
    
    $
    114,128
    
    
    $
    93,749Brokerage, clearing, and other related expenses
    
    
    7.9
    %
    
    
    12.5
    %
    
    
    8.3
    %
    
    
    12.4
    %Compensation and benefits
    
    
    11.4
    
    
    
    10.7
    
    
    
    11.4
    
    
    
    10.5Advertising
    
    
    5.8
    
    
    
    3.6
    
    
    
    6.1
    
    
    
    3.8Quotation services
    
    
    3.3
    
    
    
    3.1
    
    
    
    3.2
    
    
    
    3.0Depreciation and amortization
    
    
    2.2
    
    
    
    1.7
    
    
    
    2.3
    
    
    
    1.6Technology and telecommunication
    
    
    1.5
    
    
    
    1.5
    
    
    
    1.6
    
    
    
    1.5Other
    
    
    4.1
    
    
    
    4.6
    
    
    
    3.4
    
    
    
    4.2Income before income taxes
    
    
    63.8
    
    
    
    62.3
    
    
    
    63.7
    
    
    
    63.0Income taxes
    
    
    24.8
    
    
    
    24.3
    
    
    
    24.7
    
    
    
    24.6Net income
    
    
    39.0
    
    
    
    38.0
    
    
    
    39.0
    
    
    
    38.4
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Statistical Data
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Statistical DataNumber of customer accounts (1)
    
    
    235,300
    
    
    
    194,300
    
    
    
    235,300
    
    
    
    194,300Daily average revenue trades (DARTs) (2)
    
    
    32,700
    
    
    
    28,500
    
    
    
    31,700
    
    
    
    28,900Customer trades per account (3)
    
    
    36
    
    
    
    38
    
    
    
    36
    
    
    
    41Average commission per trade
    
    $
    17.73
    
    
    $
    18.05
    
    
    $
    17.87
    
    
    $
    17.82Option trades as a % of total trades
    
    
    65
    %
    
    
    74
    %
    
    
    65
    %
    
    
    74
    %Advertising expense per net new customer account (4)
    
    $
    300
    
    
    $
    107
    
    
    $
    323
    
    
    $
    109Total client assets (000s)
    
    $
    5,323,497
    
    
    $
    4,127,338
    
    
    $
    5,323,497
    
    
    $
    4,127,338Client margin balances (000s)
    
    $
    155,793
    
    
    $
    141,315
    
    
    $
    155,793
    
    
    $
    141,315
 
 (1)
    
    Customer accounts are open, numbered accounts.(2)
    
    DARTs are total revenue-generating trades for a period divided by the number of trading days in that period.(3)
    
    Customer trades per account are total trades divided by the average number of customer accounts during the
period. Customer trades are annualized.(4)
    
    Calculated based on net new customer accounts opened during the period. Three Months Ended June 30, 2007 versus June 30, 2006
 Overview
  
    
    total customer accounts increased by 41,000 to 235,300, or 21%;
    
    total trades increased by 268,500 to 2,061,900, or 15%; and
    
    average commission per trade decreased by $0.32 to $17.73, or 2%.
 Total revenues
   Brokerage, clearing, and other related expenses
  Compensation and benefits
  11




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Advertising
  Quotation services
  Depreciation and amortization
  Technology and telecommunication
  Other
  Income taxes
  Net income
  Six Months Ended June 30, 2007 versus June 30, 2006
 Overview
  
    
    total customer accounts increased by 41,000 to 235,300, or 21%;
    
    total trades increased by 317,200 to 3,935,000, or 9%; and
    
    average commission per trade increased by $0.05 to $17.87, or 0%.
 Total revenues
   12




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Brokerage, clearing, and other related expenses
  Compensation and benefits
  Advertising
  Quotation services
  Depreciation and amortization
  Technology and telecommunication
  Other
  Income taxes
  Net income
  Liquidity and Capital Resources
   13




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Credit Facility
   Cash Flow
    Capital Expenditures
  
 Item 3.  Quantitative and Qualitative Disclosures about Market Risk
    14




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Item 4.  Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  15




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Part II  OTHER INFORMATION
 
 Item 1.  Legal Proceedings
  
 Item 4.  Submission of Matters to a Vote of Security Holders
  Name of Nominee
    
    FOR
    
    WITHHELDDavid S. Kalt
    
    
    58,315,401
    
    
    
    270,288S. Scott Wald
    
    
    58,347,326
    
    
    
    238,363
  ABSTENTIONSAND BROKERFOR
    
    AGAINST
    
    NON-VOTES58,532,085
    
    
    18,141
    
    
    
    35,463
 
 Item 6.  Exhibits
    
 Signatures
  Dated: August 9, 2007
    optionsXpress Holdings, Inc.
(Registrant)By:
    /s/ David S. KaltDavid S. KaltChief Executive Officer
(Principal Executive Officer) By:
    /s/ Adam J. DeWittAdam J. DeWittChief Financial Officer
(Principal Financial and
Accounting Officer) 16