Yahoo Finance StoneX Group Inc. (NASDAQ:SNEX) Q2 2024 Earnings Call Transcript
StoneX Group Inc. (NASDAQ:SNEX) Q2 2024 Earnings Call Transcript May 9, 2024
StoneX Group Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, ladies and gentlemen and welcome to the StoneX Group, Inc. Q2 FY '24 Earnings Call. As a reminder, this call is being recorded. At this time, all participants are in listen-only mode. Later we will conduct the question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Bill Dunaway, Chief Financial Officer. You may begin.
William Dunaway: Good morning. My name is Bill Dunaway. Welcome to our earnings conference call for our second quarter ended March 31, 2024. After the market closed yesterday, we issued a press release reporting our results for our second fiscal quarter of 2024. This release is available on our website at www.stonex.com as well as a slide presentation, which we will refer to on this call in our discussions of our quarterly and year-to-date results. The presentation and an archive of the webcast will also be available on our website after the call's conclusion. Before getting underway, we're required to advise you and all participants should note that the following discussion should be taken in conjunction with the most recent financial statements and notes thereto, as well as the Form 10-Q filed with the SEC.
This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements include known and unknown risks and uncertainties, which are detailed in our filings with the SEC. Although the company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there could be no assurances that the company's actual results will not differ materially from any results expressed or implied by the company's forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Readers are cautioned that any forward-looking statements are not guarantees of future performance. With that, I'll now turn the call over to Sean O'Connor, the company's CEO.
Sean O'Connor: Thanks, Bill. Good morning, everyone, and thanks for joining our fiscal 2024 second quarter earnings call. The second quarter of fiscal 2024 was a solid result for us with earnings up 27% and EPS up 25% versus the prior year period. The current quarter includes a $9.1 million or approximately $0.20 per share unrealized loss on derivative position used to hedge our gold inventory. We don't elect hedge accounting on these inventories, so these losses will be reversed when this inventory is sold. For the six months to date, we recorded earnings of $122.2 million or $3.76 per share, excluding acquisition gains in the prior period relating to CDI. This represents an increase of 29% for the year-to-date period. Turning to Slide 3 and a summary of our second quarter and trailing 12 months results.
We recorded operating revenues of $818.2 million, up 16% versus the prior year. Operating revenues include not only interest earned on our client flows, but also carried interest that is related to our fixed income trading activities. Net operating revenues which nets off interest expense as well as introducing broker commissions and clearing costs were up 6% versus the year ago number and relatively flat versus the immediately prior quarter. Total compensation and other expenses were up 4% for the quarter with variable compensation up 2%, which was below the net operating revenue growth rate of 6%. Fixed compensation and related costs were flat versus a year-ago and were up 15% compared to the immediately prior quarter. The prior year amount included a severance amount in the amount of $12.1 million versus $1.1 million in the current quarter.
Net income was $53.1 million for the current period up 27% over the prior year quarter, 23% down on the immediately preceding quarter. This represents a 14.8% ROE on tangible and a 14% ROE on stated book value, which as a reminder has increased 53% over the last two years with both measures close to our long-term target of 15%. We recorded diluted EPS of $1.63 up 25% over the prior year. Looking now on a 12 month trailing basis, our operating revenues were up 28% versus the prior 12 month period and adjusted net income was $247.9 million, up 21%. EPS came in at $7.50 up 8%. We ended our second quarter in 2024 with book value per share of $48.74 up 21% versus a year ago. Turning to Slide 4 in the earnings deck, which compares quarterly operating revenues by product versus a year ago.
In aggregates, our operating revenues were up 16% with securities and FX CFD showing strong gains up 37% and 30% respectively, partially offset by physical contracts, which were down 15%, primarily due to the gold inventory item I mentioned earlier. OTC operating revenues were down 8%, while listed derivatives and payments were relatively flat. We experienced robust volume growth in listed derivatives, up 29% and securities up 30%. However, OTC derivatives and payment volumes were down 6% and 2% versus the prior year respectively. While FX and CFD volumes declined 23%, we experienced a significant increase in our revenue capture in rate per million, which is up 67%, primarily due to increased client activity in gold, oil and index products as opposed to the relatively higher volume, but lower spread FX contracts.
Outside of that, with the exception of payments rate per million, which grew modestly, we generally saw lower revenue capture versus the prior year with OTC rate per contract declining due to lower agricultural commodity volatility and lower rate per contract and listed derivatives, which was primarily due to an increase in volumes from the institutional side of our business relative to the higher rate per million commercial side of our business. Securities related operating revenue was up 37%, although this number is somewhat distorted due to a much higher interest income in our fixed income business. Carried interest in fixed income is reflected in operating revenues, while the offsetting interest expense to finance these positions is not.
The rate per million numbers have been adjusted to reflect this offsetting expense. Securities continues its trend of strong increase in volumes and a decrease in revenue capture as we continue to see strong growth in lower margin products. Our aggregate client float, which includes both listed derivative client equity and our money market FDIC suite balances declined 17% versus relatively high levels experienced in the prior year. Despite this, interest and fee income on these balances increased by 1% to $104.2 million due to us capturing higher interest rates in the current period. Turning now to Slide 5 and looking at the same data over the trailing 12 months, we again see strong double-digit growth across most of our products with the exception of listed derivatives, which was up 2% and physical contracts up 1% versus the prior year.
Again, securities related revenues were up significantly, but part of that is also due to the carried interest component I just mentioned. Volumes which were up across the board except for FX CFDs, which were down 17% and payments down 1%, are typically important indicator for us on a long-term basis, when it comes to measuring client engagements and market penetration. However, we are still somewhat subject to overall market activity. Revenue capture is largely a function of the market conditions, and again, we can see a mixed picture as market volatility generally retrace to lower levels as compared to the prior year, with the obvious exception of FX and CFDs which experienced a significant increase in rate per million revenue capture, up 33% versus the prior year.
In addition, we continue to see the effects of the change in product mix and the securities rate per million with increased volumes in lower margin products. Turning now to Slide 6, our segment summary, just to touch on a few brief highlights before Bill gets into more detail. For the quarter, segment operating revenues were up 15% and segment income was up 14% versus the prior year. Our commercial segment was down 17% in segment income off the back of a 9% decrease in operating revenues. On a sequential basis, operating revenues were up 1% and segment income was down 2%. Our institutional segment realized a 28% increase in operating revenues, which translated into a 10% increase in segment income. On a sequential basis, operating revenues were up 6% and segment income was down 6%.
Retail was a standout this quarter with operating revenues up 30%, driven by the much improved revenue capture I mentioned earlier. This growth in operating revenues combined with declines in fixed income -- fixed expenses led to $28.4 million increase in segment income to $33.2 million in the current period versus $4.8 million a year ago. On a sequential basis, revenues were up 10% and segment income increased 16%. In our payments business, operating revenues were down 1%, while segment income was up 55%, principally due to the prior year including a severance charge of $10 million. Operating revenues were down 19% and segment income down 30% versus the record immediately prior quarter. On a trailing 12 month basis, we had double-digit operating revenue gains for our Commercial, Institutional and Payment segment, while our retail segment operating revenues increased 5%.
We saw growth in segment income across all of our segments versus the prior year trailing 12 month period, led by the Retail segment, which was up 127%, followed by payments with a 24% growth. Turning now to Slide 7, which sets out at the top of the page, our trailing 12 month financial performance over the last nine quarters. These numbers have been adjusted for the accounting treatment related to the Gain and CDI acquisitions, as disclosed in our prior filings and which appear in the reconciliation provided in the appendix of this earnings deck. On the left hand side, the bars represent our trailing 12 month operating revenues over the last nine quarters. As you can see, this has been a smooth and strongly upward trend, as we have steadily expanded our footprint and capabilities.
Operating revenues are up 74% over this period for a 32% CAGR. Our adjusted pretax income likewise has grown significantly also at a 32% CAGR. On the right hand side, you can see our adjusted net income in the bars, which is up 63% over the two years for a 28% CAGR. The dotted line represents our adjusted ROE, which has remained solidly above our 15% target, even though our capital has grown by 53% over this period. On the bottom half of the slide, we set out our long-term performance, both measured in stockholders return from the bottom left graph in which we have significantly outperformed both indices shown, as well as our financial performance on the bottom right hand graph, which shows that we have grown our stockholders' equity, operating revenue and market capitalization at nearly 30% CAGR for the last 21 years.
With that, I will hand over to Bill Dunaway for a more detailed discussion of the financial results. Bill?
William Dunaway: Thank you, Sean. I'll be starting with Slide number 8, which summarizes our consolidated income statement for the second quarter of fiscal '24. Sean covered many of the consolidated highlights relating to operating revenues for the quarter, so I will just cover the consolidated expense fluctuations and then move on to a segment discussion. Transaction based clearing expenses increased 13% to $78.5 million in the current period as a result of the increases in listed derivative and securities volumes as compared to the prior year. Introducing broker commissions were relatively flat with prior year at $42 million in the current period. Interest expense increased $80.5 million versus the prior year, primarily as a result of the $78.6 million increase in interest expense related to our institutional fixed income business as well as the $5.7 million increase in interest expense related to securities lending activities.
Both of these were due to increases in short term interest rates and in addition in the case of the fixed income business increased volumes. Interest paid on client balances on deposit declined $5.8 million as compared to the prior year due to declines in average client flow. Interest expense on corporate funding increased $1.3 million versus the prior year as a result of the incremental issuance of our senior secured borrowings, partially offset by lower average borrowings on our revolving credit facility. I will expand on this topic later on this call when I cover the new note issuance. Variable compensation increased $1.9 million versus the prior year and represented 29% of net operating revenues in the current period compared to 30% in the net operating revenues in the prior year.
This decline in variable compensation as a percentage of net operating revenues is a result of the increase in net interest and fee income earned on client balances as compared to the prior year as this revenue is typically not included in variable compensation payouts as well as the increase in net operating revenues in our retail segment, which has incrementally lower levels of variable compensation associated with it. Fixed compensation was flat versus the prior year. However, the current period includes $1.1 million in severance costs versus $12.1 million in the prior year. Offsetting this decline in severance costs was an $8.1 million or 12% increase in non-variable salaries due to a 13% increase in headcount resulting from an expansion of our capabilities among our business lines as well as in support areas to facilitate this business growth.
Fixed compensation increased 15% versus the immediately preceding quarter. Within this increase in fixed compensation, non-variable salaries increased relatively modest $2.6 million, primarily related to annual marine increases. In addition, we saw seasonally driven increases in payroll taxes, retirement and paid time off accrual expenses of $6.1 million. In addition, share-based compensation expense increased $1.8 million and a reduction of deferred compensation increased overall non variable compensation by $3.1 million as compared to the immediately preceding first fiscal quarter of 2024. Other fixed expenses increased $16.5 million as compared to the prior year, including an $8 million increase in professional fees, primarily due to an increase in legal fees as well as a $3 million increase in occupancy and equipment rental principally driven by an acquisition of additional space in London and India as well as a $1.3 million accelerated charge related to consolidation of our offices in London.
In addition, selling and marketing and travel business development combined were up $2.7 million as compared to the prior year, primarily driven by approximately $4 million in expenses related to our by annual Global Sales Summit, which was partially offset by lower direct marketing costs in our retail segment. Compared to the immediately preceding quarter, other fixed expenses increased $14.8 million principally driven by a $5.9 million increase in occupancy and equipment rental due to the additional space acquired and accelerated charges I just mentioned as well as the fact the immediately preceding quarter included a 1x $3.3 million property tax refund. Finally, to close-up the discussion of expenses. We had favorable variances in bad debt, net of recoveries of $3.4 million and $100,000 versus the prior year and immediately preceding quarters respectively.
The other gain of $6.9 million in the current quarter is a class action settlement received in the commodity exchange, gold futures and options trading matter. Net income for the quarter of fiscal 2024 was $53.1 million, which represents a 27% increase versus the prior year. Net income declined 23% versus the very strong result in the immediately preceding quarter. Moving on to Slide 9, I'll provide some information on our operating segments. Operating revenues in our Commercial segment declined $19.6 million in operating revenues versus the prior year, however, increased $2.1 million versus the immediately preceding quarter. The decline versus the prior year was principally driven by an $8 million decline in operating revenues from fiscal contracts due to an $8.5 million [indiscernible] loss and derivative positions used to hedge our gold inventory as Sean mentioned earlier.
The remainder of this unrealized loss relates to our retail segment. In addition, operating revenues from listed in OTC derivatives declined $1.9 million and $4.9 million respectively as compared to the prior year. The listed derivative decline was due to lower spreads in LME products as compared to the prior year, which more than offset the 12% increase in listed contract volumes. The OTC decline was primarily due to a decline in activity in Brazilian market due to the lower agricultural volatility. Finally, interest earning on client balances declined $5.3 million as compared to the prior year as a result of a 15% decline in average client's equity, resulting from reduced margin requirements driven by the lower cut monthly volatility. Fixed compensation and benefits increased $200,000 versus the prior year and $1 million versus the immediately preceding quarter.
Other fixed expenses increased $4.7 million versus the prior year, but were relatively flat with the immediately preceding quarter. As compared to the prior year, we had increases in travel and business development, professional fees, depreciation and amortization, bank fees and non-income taxes. We had a positive variance in bad debts, net of recoveries of $2.3 million as compared to the prior year, principally driven by a decline in bad debts in our Physical Ag and Energy business. Segment income was $85.6 million for the period, a decline of 17% versus the prior year period and included the other gain related to the Gold Class action matter I mentioned earlier. Segment income decreased 2% versus the immediately preceding quarter. As a reminder, in the first quarter of fiscal 2024, we started to allocate a portion of our corporate expenses to each of our four operating segments including costs associated with compliance, technology, credit and risk, human resources and occupancy.
We have provided this allocation in each of our segments for the current period and will continue to do so prospectively. However, we have not calculated similar allocations for previously reported periods. For the current period, this allocation of corporate costs for our Commercial segment was $8.9 million. Moving on to Slide 10. Operating revenues in our institutional segment increased $100.9 million versus the prior year, primarily driven by an $88.1 million increase in securities operating revenues compared to the prior year period as the result of a 30% increase in the average daily volume of securities transactions as well as the increase in interest rates. The increase in securities ADV was driven by an increase in client volumes in both equity and fixed income markets.
As Sean mentioned earlier, the increase in interest rates also led to a significant increase in securities-related interest expense for the period, which I will touch on momentarily. Interest and fee income earned on client balances increased $6.2 million versus the prior year as a result of the increase in short term rates, which was partially offset by 17% and 24% declines in average client equity and average money market and FDIC client suite balances respectively versus the prior year. Interest and fee incomes earned on client balance was up $4.9 million versus the immediately preceding quarter. The rise in short term interest rates drove an $83.4 million increase in interest expense versus the prior year. Interest expense related to fixed income trading and securities lending activities increased $78.6 million and $5.7 million respectively as compared to the prior year, while interest paid to clients decreased $6 million due to the decline in client balances.
Segment income increased 10% to $61.3 million dollars in the current period, primarily as a result of the $11.9 million increase in net operating revenues, which was partially offset by $4.3 million increase in fixed compensation and benefits as well as a $4.9 million increase in other fixed expenses. The increase in other fixed expenses was primarily driven by a $4.1 million increase in professional fees and a $600,000 increase in trade systems and market information. These increases were partially offset by $1.5 million favorable variance in bad debt expenses versus the prior year quarter. Segment income declined $3.9 million versus the immediately preceding quarter. For the current period, the allocation of corporate costs for our institutional segment was $13.3 million.
Moving on to the next slide, operating revenues in our retail segment increased $23.4 million versus the prior year, driven by a $20.2 million increase in FX and CFD revenues as the result of an 82% increase in rate per million as compared to the prior year, which more than offset a 24% decline in FX and CFD average daily volume. The increase in RPM was primarily due to higher client activity in gold, oil and index CFD products, which generally have a higher RPM in relation to FX products, while the decline in ADV was driven by lower FX market volatility. Operating revenue increased 10% versus the immediately preceding quarter. Segment income was $33.2 million, which represents a 592% increase over the prior year period and a 16% increase compared to the immediately preceding quarter.
This was a result of the 30% increase in operating revenues as well as a $6.7 million decline in other fixed expenses as compared to the prior year. For the current period, the allocation of corporate costs for our retail segment was $12 million. Closing out the segment discussion on the next slide, operating revenues in our payments segment declined 1% versus the prior year, driven by a 1% decline in average daily volume, which more than offset a 3% increase in the rate per million as compared to the prior year. Segment income increased 55% to $24.6 million in the current period as a result of a $10.3 million decline in fixed compensation as the prior year included the $10 million of severance charges as Sean mentioned earlier. Segment income decreased $10.4 million versus the immediately preceding record first quarter.
For the current period, the allocation of corporate costs for our payment segment was $5.2 million. Finally, before passing it back to Sean for a strategy discussion, I wanted to give an update on long term capital following our recent note offerings. As Sean highlighted in the past, long term capital is integral to the success of StoneX as it supports our client activity in our regulated subsidiaries and supports the growth of our franchise. Our fundamental focus is on compounding our internally generated equity, accessing capital markets in a thoughtful manner when appropriate and deploying a centralized disciplined approach to capital allocation in order to drive results for our stockholders. To that end, on March 1st, we issued $550 million of new seven-year secured notes, which allowed us to extend our debt maturity profile and bolster our liquidity.
The proceeds of these notes were used to debase our existing $348 million of senior secured notes, which were scheduled to mature in June of 2025 as well as to pay down existing borrowings on our revolving credit facility. The $348 million in the senior secured notes will remain on our balance sheet as well as $363 million in restricted cash, which represents principal plus accrued interest through June 15, 2024 as part of this defeasement, at which time we will call these notes at par. Ultimately, while having the new notes and previously issued notes both outstanding for 3.5 months will result in incremental interest costs of approximately $900,000 per month net of the interest earned on restricted cash that will ultimately save us $4.5 million in call premium.
For the new issuance, we're very pleased with how the process unfolded, with the issuance being nearly 2.5x oversubscribed and pricing at a much tighter spread to treasuries at 377 basis points as compared to our previous issuance done during the onset of COVID and ultimately an effective interest rate 155 basis points lower than that offering. Overall, this will be leverage neutral for us, while extending our maturity profile by six years. Following this transaction, we have approximately $2.1 million in long-term capital available to support our clients and our growth. Finally, we are pleased to announce that SP [ph] recently revised the rating outlook for StoneX positive from stable, reflecting our focus on long-term capital, retained earnings and diversified franchise.
With that, I'll now like to turn it back over to Sean.
Sean O'Connor: Thanks, Bill. We are aware that there has been some renewed investor interest and some activity in our market sector, and we thought it might be worthwhile to touch on our strategy and what is driving our results currently, particularly for any new shareholders that may be listening. Slide 14 sets out our high level strategic objectives that we are focused on. This basic approach and strategy has been unchanged for over 15 years and has served us well. Before dealing with the strategy, perhaps it would be helpful to give our views on how we have seen the market structure and our competitive environment changing, and how our strategy aligns with that. Following the financial crisis 15 years ago, there was a comprehensive and significant response from the regulators around the world to create a more robust and durable financial market.
The key impacts of this were a massive increase in costs due to more complex process and oversight, as well as dramatically increased capital requirements. This made it difficult for smaller firms and those with narrow product offerings to generate sufficient revenue to remain viable given the cost and capital requirements. As a result, there has been a fairly dramatic consolidation in our industry. This can be evidenced by looking at clearing FCMs or broker dealers, which have massively reduced in numbers over this period. We have directly participated in this process through some of the acquisitions we have made. We have made over 30 acquisitions over this period. And we've also benefited indirectly as clients have been forced to find new firms to deal with.
In addition, we have seen a fairly significant withdrawal from our market by the big banks as capital refinements have forced them to reevaluate their strategy. The large banks in aggregate still account for the majority share of the market, but they are retreating, which has created significant opportunities for us. As we speak, currently U.S. banks are potentially facing increased capital requirements of over $7 billion for the U.S. derivative clearing operations, if proposed rules are enacted by the U.S. bank regulators. Generally speaking, the buyout capital rules are very punitive to trading type operations and if adopted, I'm certain the banks withdrawal from our market will accelerate as they increasingly focus on their Tier 1 clients.
Both of these factors, the lower end consolidation and the withdrawal by larger banks have directly and positively impacted StoneX and have allowed us to post CAGR's close to 30% over the last 20 years. We think there is still a long way to go in the reordering of the market structure and with our broad and unparalleled capability and product set, we are ideally placed to continue to take advantage of this trend. The most significant strategic priority in the context of the market dynamics I've just mentioned is to keep building our ecosystem. We want to be the most relevant firm in the space by having the best ecosystem to connect clients to the global financial markets. This makes us an attractive destination for new clients looking for a single partner to satisfy their trading needs and allows us to also remain relevant to our existing clients.
I believe StoneX is becoming known as a growing and best-in-class financial services franchise. We continue invest in our ecosystem by acquiring talent, either individuals or teams as well as investing in technology to expand our product and capabilities to better serve our clients. While these investments result in increased costs and expenditures, oftentimes well in advance of the ultimate benefit being achieved, they are essential to achieve the strategic objective. None of these projects in isolation will result in significant change to our current growth trajectory and certain of these initiatives may not be viable in the long run. However, in the aggregate and over time, we believe that these initiatives will bend our growth curve upwards.
In addition, because many of these are digital in nature, we should see operational leverage and scalability starting to kick in as well as steady improvement in margins. We also continue to look at acquisition opportunities and indeed over the last 15 years have completed close to 30 acquisitions. Some of these have been large and transformational such as the FCStone acquisition in 2009 and the Gain acquisition in 2020. Many however have been smaller below scale operations that needed to be part of the bigger ecosystem given the dramatic change in the operating environment I mentioned post the financial crisis. While these acquisitions were not large, many have thrived and become significant franchises for StoneX. We believe that the market structure is not favorable for these smaller businesses and we will continue to see a wide range of opportunities to acquire businesses that offer new capabilities or products for our franchise.
We believe that business valuations are now returning to more reasonable levels after becoming elevated in the aftermath of the COVID crisis. And we will remain disciplined in evaluating these opportunities to ensure that any acquisition adds value to our franchise and is accretive to our shareholders. Second key part of our strategy is we are client centric business and we need to consistently work at growing our client footprint into new markets and expanding market share where we have existing clients. We also seek to serve new client segments and channels. We have capabilities to service clients of all types and have large addressable market in front of us with very low market penetration currently. Unlike many other firms, we already have deep and significant client footprints with not only institutional clients, but also the corporate clients, retail clients and financial institutions.
And in each of these segments, we have a global representation of clients. Each of these client segments represents a large opportunity, but in the aggregate and globally, the addressable market for us is massive. We have grown our client footprint significantly over the last 10 years assisted by the positive industry environment and the fact that we have a unique ecosystem. We see this trend continuing and many clients will be looking for new brokerage and trading relationships. We believe that our unique global financial ecosystem allows us to be the counterparty of choice and places us in a strong position to win market share. Third part of our strategy, we will not achieve the necessary growth and scale unless we continue to embrace technology to digitize our offerings.
This will not only enhance client engagement, but increase scalability and margins. This initiative requires a rethink of our processes from front to back, which has been underway for some years, but has accelerated with the acquisition of Gain. We see technology playing a role in three key areas for us. Firstly, we have a large number of initiatives underway to ensure that we can engage digitally with our clients. Increasingly ease of use and digital access is a key differentiator for clients. In addition, if done right, technology can drive wallet share and embed us deeply with our clients for the long-term and they become stickier to us. We offer the full spectrum of digital solutions from mobile based low latency trading platforms, all the way to enterprise integrated bespoke offerings for our large corporate clients.
The advantage of digital offerings is that it dramatically expands your addressable market. Every client, everywhere becomes a potential client and it offers scalability and operational leverage to enhance margins. Secondly, we are increasingly using technology on the trading side. All of our trading platforms are designed to aggregate trading and internalize spreads, so we can maximize the client revenue opportunity and minimize hedging costs. As we gain critical mass in trading volumes, the impact on revenue capture can be significant and should drive additional margin. And thirdly, we have a number of projects underway throughout many of our support areas to better use technology to create efficiency and scalability in our infrastructure, which over time should drive operational leverage.
Success on the technology side should allow us to accelerate revenue growth by more effectively gaining market share, drive margin through better revenue capture and on the trading and execution side and allow us to achieve operational leverage on the operational side. These three factors together could and should be a powerful driver of our bottom line and net margins. Finally, our business is supported by long-term capital and we need to underpin our growth with internally generated capital, access the capital markets when appropriate and approach acquisitions in a disciplined manner. Our business requires regulatory capital to support the client activity we take on. We believe that most of this capital should be in the form of permanent equity capital to provide the fortress balance sheet that will define a long-term client franchise.
The most important thing we can do is to continue to create our own internal capital runway for continued growth. This is why we focus on our ROE. It is interesting to note that 10 years ago, we had little over $300 million in stockholder equity and only slightly lower number of shares outstanding than we do now. Over this 10 year period, we have more than tripled our shareholder funds, acquired 15 businesses, significantly expanded our client footprint, largely financed organically from retained earnings and the unbelievable power of compounding. During this growth, we have largely achieved our 15% ROE target, certainly not every year, but on average over the period it's pretty close. This has happened despite the investments we've made in technology and infrastructure, the cost of developing new capabilities, the integration of a large number of acquisitions, and despite low interest rates for extended periods of time.
Achieving our ROE target continues to be our North Star and we believe that as we digitize our platform and gain scale that our margins and our ROE should start to increase. Now turning to Slide 15, which gives you some sense of the scale and breadth of our ecosystem, which we believe is unique other than in bulge bracket banks. We provide global execution, clearing and custody across equities, fixed income, FX, listed derivative, swaps and commodities. To do this, we have regulated a regulated platform aligned to these activities in all the global financial markets, the U.S., the U.K., Europe, Singapore, Hong Kong, Brazil and Argentina. As you will note, we are members of only 40 exchanges. We trade over 18,000 over the counter swap products and trade almost every currency on the planet.
In terms of clients, we have over 54,000 institutional and commercial clients, over 400,000 retail clients and deal with over 600 financial institutions as clients. We have $7.1 billion of client funds and support this with $1.5 billion of permanent equity capital, as well as $550 million of term debt and over 4,300 professionals around the world. The next slide gives you some sense of the breadth of our products and how they match our client segments. As you can see, we have a very broad fixed income and equities offering, as well as an expanded derivatives capability. Also unique is our payments platform, which provides efficient and fast payments into over 180 countries, something no one else can do. We provide the service to most of the large and medium sized banks around the world to charities, NGOs and commercial clients, as well as to other payment platforms who do not have this last mile capability.
We can clearly and transparently demonstrate the clients the significant savings realized by using our payments platform, and the addressable market for this business is immense. Moving on to wrap up, let's move to the last Slide 17. We achieved solid results in this second fiscal quarter 2024, delivering growth in operating revenues and income, despite the short term mark-to-market adjustment on the gold inventories and elevated fixed expense for the quarter. We delivered operating revenue of $818.2 million, up 16%, earnings of $53.1 million and diluted EPS of $1.63 up 27% and 25% respectively. This represents a 14% ROE on stated book and excluding any mark-to-market adjustment would have been 15.8% ahead of our long-term 15% target. In some ways, the clearest and best measure of financial performance is the growth in book value per share, which for the last year is up 21%.
We are pleased to see that our business continues to generate strong long-term returns for our stockholders despite moderating volatility, which demonstrates the multiple drivers of our results and the diversification of our business. When our performance is viewed through a slightly longer term lens such as the trailing 12 months over the last two years, which evens out quarterly anomalies, our results continue to show a strong upward trajectory, growing our operating revenues at 30% CAGR and our adjusted earnings at a 28% CAGR. Over these last 12 months, we continue to see a growth in client trading volumes across most of our products and in our operating revenues across all of our segments, which speaks to growth in our underlying client base and client engagements.
As a reminder, in our 2024 year, we celebrate our 100 year anniversary of our namesake legacy company, Saul Stone & Co. Remarkable to think that what started as a door-to-door egg wholesaler has grown into a global financial franchise spanning over 80 offices and across six continents. Our long standing track record sets a standard, we believe is largely unmatched in our industry. Yet we recognize we are far from realizing the full scope of opportunities and market share available to us. Operator, with that, let's move to some questions if there are any.
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