FactSet (FDS) is trading modestly lower (-3%) after reporting Q3 (May) results this morning. In case you're not familiar, FactSet provides financial information and analytical applications for the investment community. It delivers insight and information to financial investment professionals through its analytics, service, content, and technology.
By integrating comprehensive datasets and analytics across asset classes with client data, FactSet supports the workflow of both buy-side and sell-side clients. These professionals include portfolio managers, wealth managers, research and performance analysts, risk managers, research professionals, investment bankers, and fixed income professionals.
From streaming real-time data to historical information, including quotes, estimates, news and commentary, FactSet offers unique and third-party content through desktop, wireless and off-platform services. Its platform includes company and industry analyses, full screening tools, portfolio analysis, risk profiles, alpha-testing, portfolio optimization and research management systems. FDS primarily generates revenue from subscriptions.
Turning to the Q3 (May) results, non-GAAP EPS rose 18% YoY to $2.18 while revenue rose 8.9% YoY to $339.9 mln. The EPS was some good upside to market expectations while revenue was generally in-line. Full year non-GAAP EPS guidance was increased to $8.37-8.62 from $8.35-8.55 while revenue was reaffirmed at $1.34-1.36 bln.
The increase in revenue was primarily due to higher sales of analytics products, content and technology solutions (CTS) and wealth management. Annual Subscription Value (ASV) increased to $1.36 bln at May 31, 2018 compared with prior year ASV of $1.28 bln. ASV at any given point in time represents the forward-looking revenue for the next 12 months from all subscription services currently being supplied to clients. Adjusted operating margin decreased to 31.0% from 31.9% last year.
Buy-side and sell-side ASV growth rates for MayQ were 5.3% and 5.0%, respectively. Buy-side clients accounted for 84.4% of ASV while the remainder is derived from sell-side firms that perform M&A advisory work, capital markets services and equity research.
Client count as of May 31, 2018 was 4,975, a net increase of 80 clients in the past three months, primarily driven by the company's wealth management business. The count includes clients with ASV of $10,000 and above. User count increased by 860 to 89,506 in the past three months primarily driven by an increase in wealth workstation sales. FactSet defines users as workstation and StreetAccount users. Annual client retention was greater than 95% of ASV. When expressed as a percentage of clients, annual retention was 90%.
In sum, the stock is trading lower on the MayQ report. It may be due to the decline in adjusted operating margin. Also, the EPS upside this quarter was not as large as it was in Q1 (Nov) and Q2 (Feb). The stock has been mostly trading sideways since November 2017, mostly staying in the $190-215 range. The stock had slipped a bit over the past week heading into this report as perhaps investors had some concerns about the MayQ report. With that said, on the positive side, FDS sports some very large operating margins. It's rare to find a company in the 30% range. So that is something to keep in mind going forward.