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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 March 31, 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
    
    20-1444525(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 39 S. LaSalle, Suite 220, Chicago, Illinois
60603    (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
    
    13Item 4.  Controls and Procedures
    
    14Part II  OTHER INFORMATION
    
    14Item 1.  Legal Proceedings
    
    14Item 6.  Exhibits
    
    14Signatures
    
    15EX-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
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##### Table of Contents



Part I  FINANCIAL INFORMATION
 
 Item 1.  Condensed Consolidated Financial Statements
 optionsXpress Holdings, Inc.
 
 Condensed Consolidated Statements of Financial Condition
 (Unaudited)
 March 31,
    
    
    December 31,2007
    
    
    2006AssetsCash and cash equivalents
    
    $
    78,859
    
    
    $
    76,590Short-term investments
    
    
    118,750
    
    
    
    118,075Cash and investments segregated in compliance with federal regulations
    
    
    369,608
    
    
    
    281,288Receivables from brokerage customers
    
    
    141,447
    
    
    
    139,080Receivables from brokers, dealers and clearing organizations
    
    
    24,118
    
    
    
    21,601Deposits with clearing organizations
    
    
    60,394
    
    
    
    38,115Fixed assets, net
    
    
    7,984
    
    
    
    6,619Goodwill
    
    
    28,674
    
    
    
    79Other intangible assets, net
    
    
    4,575
    
    
    
    Other assets
    
    
    8,198
    
    
    
    6,077Total assets
    
    $
    842,607
    
    
    $
    687,524Liabilities and stockholders equityLiabilities:Payables to brokerage customers
    
    $
    597,105
    
    
    $
    476,890Payables to brokers, dealers and clearing organizations
    
    
    10,808
    
    
    
    17,422Accounts payable and accrued liabilities
    
    
    12,218
    
    
    
    8,748Current and deferred income taxes
    
    
    12,384
    
    
    
    3,636Total liabilities
    
    
    632,515
    
    
    
    506,696Stockholders equity:Common stock, $0.0001 par value, 250,000 shares authorized; March 31,
2007  62,937 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
    
    
    105,088
    
    
    
    93,183Accumulated other comprehensive income
    
    
    39
    
    
    
    28Retained earnings
    
    
    104,959
    
    
    
    87,611Total stockholders equity
    
    
    210,092
    
    
    
    180,828Total liabilities and stockholders equity
    
    $
    842,607
    
    
    $
    687,524
 See accompanying notes
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optionsXpress Holdings, Inc.
 
 Condensed Consolidated Statements of Operations
 (Unaudited)
 Three Months EndedMarch 31,2007
    
    
    2006Revenues:Commissions
    
    $
    33,756
    
    
    $
    32,087Other brokerage-related revenue
    
    
    8,090
    
    
    
    8,964Interest revenue and fees
    
    
    14,135
    
    
    
    5,228Interest expense
    
    
    (1,576
    )
    
    
    Net interest revenue and fees
    
    
    12,559
    
    
    
    5,228Other income
    
    
    323
    
    
    
    159Total revenues
    
    
    54,728
    
    
    
    46,438Expenses:Brokerage, clearing and other related expenses
    
    
    4,830
    
    
    
    5,727Compensation and benefits
    
    
    6,201
    
    
    
    4,807Advertising
    
    
    3,561
    
    
    
    1,876Quotation services
    
    
    1,714
    
    
    
    1,299Depreciation and amortization
    
    
    1,266
    
    
    
    720Technology and telecommunications
    
    
    848
    
    
    
    713Other
    
    
    1,524
    
    
    
    1,693Total expenses
    
    
    19,944
    
    
    
    16,835Income before income taxes
    
    
    34,784
    
    
    
    29,603Income taxes
    
    
    13,503
    
    
    
    11,558Net income
    
    $
    21,281
    
    
    $
    18,045Earnings per common share:Basic
    
    $
    0.34
    
    
    $
    0.29Diluted
    
    $
    0.34
    
    
    $
    0.29Weighted-average number of common shares:Basic
    
    
    62,780
    
    
    
    62,213Diluted
    
    
    62,985
    
    
    
    62,600
 See accompanying notes.
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optionsXpress Holdings, Inc.
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 Three Months EndedMarch 31, 2007
    
    
    March 31, 2006Operating activitiesNet income
    
    $
    21,281
    
    
    $
    18,045Adjustments to reconcile net income to cash provided by operating activities:Depreciation and amortization
    
    
    1,266
    
    
    
    720Stock-based compensation
    
    
    521
    
    
    
    350Net deferred income taxes
    
    
    364
    
    
    
    210Gain on investment in non-consolidated affiliate
    
    
    (52
    )
    
    
    (101
    )Changes in operating assets and liabilities:(Increase) decrease in:Cash segregated in compliance with federal regulations
    
    
    5,021
    
    
    
    (685
    )Receivables from brokerage customers
    
    
    (1,601
    )
    
    
    Receivables from brokers, dealers and clearing organizations
    
    
    (2,193
    )
    
    
    (2,836
    )Deposits with clearing organizations
    
    
    (22,279
    )
    
    
    Other assets
    
    
    (1,988
    )
    
    
    (1,400
    )Increase (decrease) in:Payables to brokerage customers
    
    
    29,336
    
    
    
    594Payables to brokers, dealers and clearing organizations
    
    
    (6,614
    )
    
    
    Accounts payable and accrued liabilities
    
    
    1,410
    
    
    
    (653
    )Current income taxes payable
    
    
    8,384
    
    
    
    8,747Net cash provided by operating activities
    
    
    32,856
    
    
    
    22,991Investing activitiesPurchases of short-term investments
    
    
    (12,900
    )
    
    
    (12,579
    )Proceeds from sales and maturities of short-term investments
    
    
    12,225
    
    
    
    12,107Purchases and development of computer software
    
    
    (619
    )
    
    
    (572
    )Purchases of fixed assets
    
    
    (1,459
    )
    
    
    (1,138
    )Loans to affiliates and non-affiliates
    
    
    
    
    
    
    (1,000
    )Cash used in acquisition
    
    
    (24,135
    )
    
    
    Net cash used in investing activities
    
    
    (26,888
    )
    
    
    (3,182
    )Financing activitiesExercise of stock options
    
    
    188
    
    
    
    426Excess tax benefit for stock-based compensation
    
    
    46
    
    
    
    421Dividends paid
    
    
    (3,933
    )
    
    
    (3,114
    )Net cash used in financing activities
    
    
    (3,699
    )
    
    
    (2,267
    )Net increase in cash and cash equivalents
    
    
    2,269
    
    
    
    17,542Cash and cash equivalents, beginning of period
    
    
    76,590
    
    
    
    10,258Cash and cash equivalents, end of period
    
    $
    78,859
    
    
    $
    27,800Supplemental cash flow information:Income taxes paid
    
    $
    4,725
    
    
    $
    2,041Interest paid
    
    
    1,576
    
    
    
    3Supplemental disclosure of non-cash activity:Non-cash unrealized gain on short-term investments
    
    $
    
    
    
    $
    5Non-cash foreign currency translation
    
    
    11
    
    
    
    (3
    )Issuance of common stock in acquisition
    
    
    11,150
    
    
    
    
 See accompanying notes.
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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
   2. Business Acquisition
   3. Summary of Significant Accounting Policies
  Income Taxes 
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Cash and Investments Segregated in Compliance with Federal Regulations
 Goodwill 
 Other Intangible Assets 
 Earnings Per Share 
 4. Stock-Based Compensation
    Three Months EndedMarch 31,2007
    
    2006Dividend yield
    
    
    1
    %
    
    
    1
    %Expected volatility
    
    
    37
    %
    
    
    44
    %Risk-free interest rate
    
    
    4.48
    %
    
    
    4.69
    %Expected life of option (in months)
    
    
    90
    
    
    
    90
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5. Guarantees
      6. Goodwill and Other Intangible Assets
  Balance as of December 31, 2006
    
    $
    79Goodwill from the XpressTrade acquisition
    
    
    28,595Balance as of March 31, 2007
    
    $
    28,674
   Original
    
    Accumulated
    
    CarryingValue
    
    Amortization
    
    ValueCustomer relationships
    
    $
    4,500
    
    
    $
    225
    
    
    $
    4,275Trade name
    
    
    300
    
    
    
    
    
    
    
    300$
    4,800
    
    
    $
    225
    
    
    $
    4,575
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7. Capitalization
 Common Stock
   Preferred Stock
  Dividends
  8. Regulatory Requirements
    9. Earnings Per Share
  Three Months EndedMarch 31,2007
    
    
    2006Net income
    
    $
    21,281
    
    
    $
    18,045Weighted-average number of common shares outstanding  basic
    
    
    62,780
    
    
    
    62,213Effect of dilutive securities
    
    
    205
    
    
    
    387Weighted-average number of common shares outstanding 
diluted
    
    
    62,985
    
    
    
    62,600Basic EPS
    
    $
    0.34
    
    
    $
    0.29Diluted EPS
    
    $
    0.34
    
    
    $
    0.29
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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.
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Results of Operations
  Three Months EndedMarch 31,2007
    
    2006Results of OperationsTotal revenues (in thousands)
    
    $
    54,728
    
    
    $
    46,438Brokerage, clearing, and other related expenses
    
    
    8.8
    %
    
    
    12.3
    %Compensation and benefits
    
    
    11.3
    
    
    
    10.4Advertising
    
    
    6.5
    
    
    
    4.0Quotation services
    
    
    3.1
    
    
    
    2.8Depreciation and amortization
    
    
    2.3
    
    
    
    1.6Technology and telecommunication
    
    
    1.6
    
    
    
    1.5Other
    
    
    2.8
    
    
    
    3.6Income before income taxes
    
    
    63.6
    
    
    
    63.8Income taxes
    
    
    24.7
    
    
    
    24.9Net income
    
    
    38.9
    
    
    
    38.9
 Statistical Data
  Three Months EndedMarch 31,2007
    
    2006Statistical DataNumber of customer accounts (1)
    
    
    223,800
    
    
    
    178,700Daily average revenue trades (DARTs) (2)
    
    
    30,700
    
    
    
    29,400Customer trades per account (3)
    
    
    35
    
    
    
    43Average commission per trade
    
    $
    18.02
    
    
    $
    17.59Option trades as a % of total trades
    
    
    66
    %
    
    
    74
    %Advertising expense per net new customer account (4)
    
    $
    349
    
    
    $
    111Total client assets (000s)
    
    $
    4,993,358
    
    
    $
    3,994,714Client margin balances (000s)
    
    $
    134,902
    
    
    $
    121,758
 
 (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 March 31, 2007 versus March 31, 2006
 Overview
  
    
    total customer accounts increased by 45,100 to 223,800, or 25%;
    
    total trades increased by 48,700 to 1,873,100, or 3%; and
    
    average commission per trade increased by $0.43 to $18.02, or 2%.
 Total revenues
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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
  12




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Cash Flow
    Capital Expenditures
  
 Item 3.  Quantitative and Qualitative Disclosures about Market Risk
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Item 4.  Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 Part II  OTHER INFORMATION
 
 Item 1.  Legal Proceedings
 
 
 Item 6.  Exhibits
 Exhibit
    
    Description31.1
    
    Certification of David S. Kalt, Principal Executive Officer, as required pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Adam J. DeWitt, Principal Financial Officer, as required pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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Signatures
  Dated: May 10, 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) 15