Brokerage Revenue Increases 83% as Retail Accounts, DARTs and Client Assets Rise Sharply; Outpacing Industry Trends Investor Education Subscribers Reach Record Level of 94,600 as New Pricing Strategies Increase Student Acquisition NEW YORK, Aug. 2 /PRNewswire-FirstCall/ -- Investools Inc. (Nasdaq:SWIM), a leading provider of online brokerage and investor educationservices, today announced financial results and selected operating metricsfor the second quarter and six months ended June 30, 2007. Consolidated financial highlights for the second quarter include: -- Record Revenues of $77.6 million. -- Net income of $3.7 million. -- Record Sales Transaction Volume of $85.5 million. -- Non-GAAP Adjusted EBITDA (before certain items) was a record $22.3 million, or 26.1% of sales transaction volume. "Outperforming online brokerage trends, and well ahead of ourexpectations, Investools has emerged as the leading online broker foreducated investors in its first full quarter of consolidated operations. Wehave exceeded our forecasts for growth in account openings, DARTs andclient assets for 10 months in a row and have achieved record sales of$77.6 million and net income of $3.7 million in the second quarter. Theseresults demonstrate the future earnings power of our unique, profitableaccount acquisition model which generates active, educated retail investorswho trade on thinkorswim's award-winning technology platforms," said Lee K.Barba, Chairman and CEO of Investools Inc. thinkorswim highlights for the second quarter ended June 30, 2007compared to the year-ago period: -- Record brokerage revenue of $26.9 million, up 83%. -- Record new accounts funded of 9,725, up 301%. -- Funded accounts totaled 39,075 as of June 30, 2007, up 180%. -- New qualified accounts opened, net, of 17,100, up 378%. -- Retail DARTs of 20,900, up 175%. -- Active Trader DARTs of 27,000, up 65%. -- Total client assets $1.78 billion, up 125%. -- Average client account balance of $44,400, trading 153 times per year. "thinkorswim's online trading business is experiencing the strongestgrowth in the industry. The focus on delivering superior technology,support and flexible pricing for over seven years is now being recognizedas the account base has scaled to approximately 40,000 active fundedaccounts by attracting active traders through referrals, education-basedchannel partners and, most significantly, through the conversion of ourInvestor Education Group's graduates," said Mr. Barba. Investor Education Group highlights for the second quarter ended June30, 2007 compared to the year-ago period: -- Sales Transaction Volume of $58.6 million. -- Revenue of $50.7 million, up 17%. -- Price and offer changes fuel efficient graduate growth: - Investools marketed graduates of 5,420, up 46%. - Total paid graduates of 10,990 during the quarter. - Active Investor Toolbox subscribers of 94,600, up 13%. As the Investor Education Group introduces new pricing andsubscription- based product offerings aimed at increasing studentacquisition, reduced levels of sales transaction volumes are expected whilecost and operating efficiencies are aligned to maintain our profitableinvestor education acquisition model. "Second quarter margins improved significantly for the InvestorEducation Group through cost efficiencies, particularly in marketing, whilestudent acquisitions remained strong and up-sells of continuing educationproducts reached record levels of 48%. These results were achieved inconjunction with the introduction of new pricing strategies andsubscription-based offers to attract a broader base of retail investors toour Foundation Course," noted Mr. Barba. "We continue to experience highconversion rates of our graduates to thinkorswim active trading accounts aswe integrate the option knowledge and trading know-how of thinkorswim intoour education products and services." Outlook "Looking ahead to the balance of 2007, we expect continued stronggrowth in our online brokerage business. We continue the alignment of oureducation business consistent with our position as the leading onlinebroker for the educated investor. thinkorswim's strong metrics continue todemonstrate a frequency and quality of trading activity that supports ourflexible pricing model to attract and sustain the most qualified retailtrading accounts in the markets. We are confident that our profitableaccount acquisition model will continue to convert students to high-valuethinkorswim trading accounts at a strong pace. As a result, we expectInvestools will generate positive GAAP earnings for the next two quarters."Mr. Barba concluded. Conference Call/Webcast Information Investools will conduct a conference call to discuss second quarterresults at 4:30 p.m. Eastern Time today. The call is being webcast and willbe available through Investools' website at http://www.investools.com underInvestor Relations and through thinkorswim's website at http://www.thinkorswim.comunder Investor Relations. About Investools (Nasdaq: SWIM) Investools Inc. offers market-leading investor education and brokerageand related financial products and services for self-directed investors.Investools Education Group offers a full range of investor educationproducts and services that provide lifelong learning in a variety ofinteractive delivery formats, including instructor-led synchronous andasynchronous online courses, in-person workshops, one-on-one andone-to-many online coaching programs and telephone, live-chat and emailsupport. thinkorswim Inc., Investools' financial technology pioneer andindustry-leading online brokerage firm, is focused on providing services toself-directed options traders and active traders. thinkorswim offerscustomers a broad range of products including equity securities, fixedincome, index products, options, futures, other derivatives and foreignexchange. thinkorswim provides unique front end trading platforms thatallow its customers to trade electronically and provides sophisticatedtrading tools and analytics, including tools for implementing complex,multi-leg options strategies. The products and services offered byInvestools Inc. have received numerous accolades from third partiesincluding thinkorswim's ranking by Barron's as its top rated software-basedonline broker and best for options traders (2006 & 2007), and Prophet's topBarron's ranking for best technical analysis tools (2006). Safe Harbor This press release may contain forward-looking statements. Suchforward- looking statements may be identified by words such as "believe,""intend," "expect," "may," "could," "would," "will," "should," "plan," orsimilar statements. All forward-looking statements are based largely oncurrent expectations, beliefs and assumptions concerning future events thatare subject to substantial risks and uncertainties. These risks anduncertainties include, but are not limited to: general changes in economicconditions and changes in conditions affecting the financial servicesindustry specifically, regulatory developments that affect the way wemarket or sell our products and services, our inability to protect ourproprietary technology, our ability to sell existing products and servicesin both new and existing markets, and other factors which are more fullydescribed in Investools filings with the Securities and ExchangeCommission. Should one or more of these risks or uncertainties materialize,actual results may vary in material aspects from those currentlyanticipated. The forward-looking statements made in this press releaserelate only to events as of the date of this release. We undertake noongoing obligation to update these statements. Investor Contact: Ida Kane, SVP and CFO 801.816.6918 ida.kane@investools.com Media Contact: Fran Del Valle 212-717-5499 frances.delvalle@influencecentral.com INVESTOOLS INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands) June 30, December 31, 2007 2006 (unaudited) ASSETS Current assets: Cash and cash equivalents $31,132 $52,923 Marketable securities 2,792 22,141 Accounts receivable, net of allowance ($338 and $74) 20,843 5,885 Receivable from clearing brokers 8,881 - Income tax receivable 8,376 - Deferred tax asset 7,234 - Other current assets 8,581 10,056 Total current assets 87,839 91,005 Long-term restricted cash 382 377 Goodwill 207,235 18,085 Intangible assets, net of accumulated amortization ($9,861 and $4,154) 139,185 2,936 Software development cost, net of accumulated depreciation ($2,493 and 274) 20,763 12,584 Furniture and equipment, net of accumulated depreciation ($6,373 and $4,790) 8,096 5,253 Other long-term assets 20,792 1,397 Total assets $484,292 $131,637 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of deferred revenue $137,747 $120,919 Other current liabilities 22,721 15,958 Accounts payable 12,465 4,388 Accrued payroll 9,196 4,870 Accrued tax liabilities 8,219 9,602 Current portion of capitalized lease obligations 198 180 Current portion of notes payable 17,500 - Total current liabilities 208,046 155,917 Long-term portion of deferred revenue 43,514 38,656 Capitalized lease obligations 425 500 Notes payable 105,000 - Deferred income taxes 12,955 - Other long-term accrued liabilities 56 215 Total liabilities 369,996 195,288 Stockholders' equity (deficit): Common stock $0.01 par value (65,593 and 45,264 shares issued and outstanding, respectively) 656 453 Additional paid-in capital 322,000 128,115 Accumulated other comprehensive income - 3 Accumulated deficit (208,360) (192,222) Total stockholders' equity (deficit) 114,296 (63,651) Total liabilities and stockholders' equity (deficit) $484,292 $131,637 INVESTOOLS INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (in thousands, except per share amounts) (unaudited) Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 Revenue $77,617 $43,447 $132,474 $86,121 Costs and expenses Cost of revenue 37,815 35,851 69,898 64,550 Selling expense 17,161 12,166 36,365 24,506 General and administrative expense 14,637 8,608 37,075 16,676 Special charges 1,088 2,624 1,215 2,990 Total costs and expenses 70,701 59,249 144,553 108,722 Income (loss) from operations 6,916 (15,802) (12,079) (22,601) Other income (expense) Interest expense (2,309) (17) (3,777) (31) Interest income 209 604 861 964 Other 7 - 6 2 Other (expense) income (2,093) 587 (2,910) 935 Net income (loss) before income taxes and cumulative effect of accounting change 4,823 (15,215) (14,989) (21,666) Income tax provision 1,117 28 1,150 56 Net income (loss) before cumulative effect of accounting change 3,706 (15,243) (16,139) (21,722) Cumulative effect of accounting change - - - 48 Net income (loss) $3,706 $(15,243) $(16,139) $(21,674) Net income (loss) per common share: Basic $0.06 $(0.34) $(0.27) $(0.48) Diluted $0.05 $(0.34) $(0.27) $(0.48) Weighted average common shares outstanding - basic 65,379 45,067 60,368 44,943 Weighted average common shares outstanding - diluted 67,653 45,067 60,368 44,943 INVESTOOLS INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 Cash flows from operating activities: $3,706 $(15,243) $(16,139) $(21,674) Net Income (loss) Reconciling adjustments: Depreciation and amortization 5,216 1,205 8,660 2,316 Deferred taxes 734 56 767 56 Stock compensation expense 1,806 292 11,573 491 Amortization of exclusivity rights 792 - 1,620 - Amortization of debt issue costs 303 - 451 - Provision for sales return reserve 594 154 588 545 Provision for lease termination 136 - 136 213 Provision for (recovery of) bad debt 164 4 264 (35) Loss (gain) on sale of assets 21 (3) 21 (10) Impairment of capitalized software development - 1,464 - 1,464 Loss on marketable securities - - 4 - Changes in operating assets and liabilities, net of the effect of acquired businesses: Accounts receivable (5,887) (712) (13,669) 461 Receivable from clearing brokers (1,414) - (4,533) - Income tax receivable 383 - 44 - Other assets 1,929 (2,342) (1,428) (1,659) Accounts payable 1,775 158 (4,813) 1,248 Deferred revenue 7,575 29,946 22,289 45,795 Accrued payroll 1,544 379 426 328 Other liabilities (8,171) (397) (6,620) 600 Accrued tax liabilities (32) 407 (12) 1,770 Net cash provided by (used in) operating activities 11,174 15,368 (371) 31,909 Cash flows from investing activities: Purchases of marketable securities - (17,036) - (23,403) Proceeds from the maturity of marketable securities 4,498 1,500 19,811 2,500 Proceeds from the sale of equipment 25 3 25 10 Payments for capitalized software development costs (1,614) (1,987) (3,840) (3,473) Purchases of furniture, fixtures and equipment (1,118) (1,140) (1,777) (1,999) Cash paid in business acquisitions, net of cash received (165) - (158,641) - Net cash provided by (used in) investing activities 1,626 (18,660) (144,422) (26,365) Cash flows from financing activities: Payments on capital leases (48) (40) (91) (70) Payment on note payable (2,500) - (2,500) - Changes in long-term restricted cash (2) 4,720 (5) 4,717 Repurchase of stock - (1,360) - (1,360) Proceeds from note payable - - 125,000 - Proceeds from exercise of stock options 368 219 598 672 Net cash provided by (used in) financing activities (2,182) 3,539 123,002 3,959 Increase (decrease) in cash and cash equivalents 10,618 247 (21,791) 9,503 Cash and cash equivalents: Beginning of period 20,514 20,722 52,923 11,466 End of period 31,132 20,969 31,132 20,969 Investools Inc. Operating Metrics thru June 30, 2007 2006 Jan Feb Mar Apr May Jun thinkorswim Inc. Trading Days 20.00 19.00 23.00 19.00 22.00 22.00 Retail DARTs 7,000 6,800 6,100 7,300 8,100 7,200 Active Trader DARTs 19,300 18,400 15,500 18,800 16,200 14,600 Total DARTs 26,300 25,200 21,600 26,100 24,300 21,800 New Funded Retail Accounts 550 575 800 850 825 750 Net New Funded Retail Accounts 425 500 650 725 725 625 Month End Funded Retail Accounts 10,725 11,225 11,875 12,600 13,325 13,950 New Retail Accounts Opened, net 725 875 1,175 1,225 1,125 1,225 Total Trades 526,000 479,000 498,000 497,000 536,000 480,000 Option Trade as % of Total Trades 84% 84% 82% 82% 81% 75% Client Assets ($MM) $610 $620 $690 $730 $760 $790 Average Client Equity/Retail Account ($M) $53.6 $52.7 Retail Commission Per Trade ($) $13.44 $13.58 Investor Education Group Investools Marketed Paid Graduates 1,260 1,160 1,660 1,230 1,280 1,190 Partner Marketed Paid Graduates 590 3,150 1,960 4,340 2,960 3,820 Total Paid Graduates 1,850 4,310 3,620 5,570 4,240 5,010 Cumulative Graduates 211,000 218,000 224,000 233,000 240,000 248,000 Active Subscribers 70,000 71,900 73,400 77,100 79,200 83,700 2006 Jul Aug Sep Oct Nov Dec thinkorswim Inc. Trading Days 19.50 23.00 20.00 22.00 20.50 20.00 Retail DARTs 8,000 7,600 7,800 8,700 10,700 10,300 Active Trader DARTs 12,300 13,400 15,800 11,200 13,500 10,700 Total DARTs 20,300 21,000 23,600 19,900 24,200 21,000 New Funded Retail Accounts 675 850 950 2,275 2,150 2,175 Net New Funded Retail Accounts 575 675 850 2,150 2,050 2,025 Month End Funded Retail Accounts 14,525 15,225 16,050 18,200 20,250 22,275 New Retail Accounts Opened, net 1,150 1,300 3,500 4,400 4,250 4,175 Total Trades 396,000 483,000 472,000 436,000 497,000 420,000 Option Trade as % of Total Trades 73% 78% 81% 81% 77% 71% Client Assets ($MM) $820 $860 $890 $950 $1,030 $1,100 Average Client Equity/Retail Account ($M) $53.7 $48.0 Retail Commission Per Trade ($) $13.26 $12.65 Investor Education Group Investools Marketed Paid Graduates 1,080 1,470 1,870 1,460 1,840 1,820 Partner Marketed Paid Graduates 1,930 380 3,480 2,080 1,750 1,300 Total Paid Graduates 3,010 1,850 5,350 3,540 3,590 3,120 Cumulative Graduates 253,000 256,000 264,000 269,000 274,000 278,000 Active Subscribers 83,400 84,400 85,300 86,400 86,900 85,400 2007 Jan Feb Mar Apr May Jun thinkorswim Inc. Trading Days 20.00 19.00 22.00 20.00 22.00 21.00 Retail DARTs 13,700 15,600 16,200 18,500 20,700 23,400 Active Trader DARTs 20,900 19,100 22,000 22,100 25,700 33,200 Total DARTs 34,600 34,700 38,200 40,600 46,400 56,600 New Funded Retail Accounts 2,325 2,675 3,125 3,525 3,150 3,050 Net New Funded Retail Accounts 2,175 2,525 2,950 3,350 2,950 2,875 Month End Funded Retail Accounts 24,450 26,975 29,925 33,275 36,225 39,075 New Retail Accounts Opened, net 4,900 5,525 6,050 5,950 5,775 5,375 Total Trades 692,000 660,000 840,000 812,000 1,021,000 1,187,000 Option Trade as % of Total Trades 81% 81% 82% 81% 82% 82% Client Assets ($MM) $1,190 $1,290 $1,420 $1,530 $1,680 $1,780 Average Client Equity/Retail Account ($M) $46.1 $44.4 Retail Commission Per Trade ($) $10.55 $10.16 Investor Education Group Investools Marketed Paid Graduates 1,760 2,550 1,580 1,270 1,540 2,610 Partner Marketed Paid Graduates 700 2,170 1,610 2,080 2,130 1,360 Total Paid Graduates 2,460 4,720 3,190 3,350 3,670 3,970 Cumulative Graduates 282,000 288,000 293,000 298,000 302,000 308,000 Active Subscribers 86,700 89,500 90,800 91,000 93,000 94,600 (1) Retail DARTs are trades executed using the retail thinkorswim platform. (2) Active Trader DARTs are trades executed using an active trader platform such as thinkpipes. (3) Net new accounts opened are accounts where the account opening process has been initiated with the "intent to fund", net of closed accounts. (4) Includes students who graduated from both the Foundation Course and the Currency Trader Course (5) Cumulative graduates includes graduates and their guest attendees at workshops (6) Active subscribers includes subscribers to both Investools Online and prophet.net Investools Inc. Financial Summary ($ in millions) 2006 2007 Q1 Q2 Q3 Q4 Q1 Q2 Total sales transaction volume (1) 58.70 73.30 56.60 64.20 69.70 85.50 Change in deferred, net (16.00) (29.90) (16.60) (20.00) (14.80) (7.90) Total revenue 42.70 43.40 40.00 44.20 54.90 77.60 Cost of revenue 28.70 35.90 26.30 30.40 32.10 37.80 Selling expense 12.30 12.20 12.10 16.30 19.20 17.20 General and administrative 8.10 8.60 8.30 7.70 22.40 14.60 Other expense (income) - 1.90 (1.30) 3.50 1.00 4.30 Net income (loss) (6.40) (15.20) (5.40) (13.70) (19.80) 3.70 Reconciliation of Non-GAAP Information Net income (loss) (6.40) (15.20) (5.40) (13.70) (19.80) 3.70 Depreciation and amortization 1.10 1.20 1.20 1.40 4.30 6.00 Other non-cash items 0.20 0.40 0.30 0.30 9.80 1.80 Special charges 0.40 2.60 0.20 4.40 0.10 1.10 Interest expense (income) (0.30) (0.60) (0.60) (0.90) 0.80 2.10 Net change in deferred revenue 15.80 29.90 16.70 19.90 14.70 7.60 Adjusted EBITDA ($) (2) 10.80 18.30 12.40 11.40 9.90 22.30 Adjusted EBITDA (%) 18.4% 25.0% 21.9% 17.8% 14.2% 26.1% 2006 2007 Q1 Q2 Q3 Q4 Q1 Q2 Investor Education Group Upsell metrics (3) 33% 27% 35% 45% 41% 48% PHD program 25% 27% 19% 20% 27% 18% Masters program 36% 32% 37% 31% 29% 25% Associates program 39% 41% 36% 29% 29% 30% Trading rooms 0% 0% 7% 20% 16% 27% thinkorswim Group Revenue Commissions 8,139 9,695 10,301 11,627 12,880 16,704 Interest & dividends 1,563 2,211 2,713 3,159 4,025 4,988 Other & brokerage related revenue 3,307 2,802 2,586 2,686 3,445 5,200 Total thinkorswim group revenue 13,009 14,708 15,600 17,471 20,350 26,892 (1) The Company believes that Investor Education Group sales transaction volume is an important measure of business volume. Sales transaction volume is a non-GAAP financial measure and represents sales in a particular period before the effect of recognition of deferred revenue from prior periods and the deferral of current period sales. The table provides a reconciliation of non-GAAP total sales volume to GAAP revenue for the periods indicated. (2) The Company believes that non-GAAP Adjusted EBITDA as shown in the table is a valuable representation of operating performance given the impact of accounting for deferred revenue and certain other costs. The table provides a reconciliation of Net Income (Loss) to Adjusted EBITDA for the periods indicated. (3) This table outlines the workshop upsell rates during the periods indicated. During the third quarter of 2006, the Company introduced a subscription based Trading Rooms product as an alternative upsell at the workshop. Workshop upsell rates are the sales that take place at the workshops of advanced product sales. Upsell rates do not include sales from the Company's other sales operations.
