What happened

Shares of Avid Technology (NASDAQ:AVID) soared on Thursday, peaking at a gain of 26.3% just before noon EDT. The maker of professional audio and video production software reported mixed first-quarter results with a side of optimistic guidance for the second quarter.

So what

Avid's first-quarter sales rose 3% year over year to $116.3 million. Adjusted earnings doubled, landing at $0.28 per diluted share. Your average Wall Street analyst had been looking for earnings near $0.30 per share on revenue in the neighborhood of $112 million.

Looking ahead to the next quarter, Avid expects earnings of roughly $0.23 per share and sales near $91.5 million. Here, the current analyst consensus estimates pointed to $0.20 per share and $88 million, respectively.

A yellow charting arrow punches through a wall of blue bricks on an upward trajectory.

Image source: Getty Images.

Now what

Pro Tools, Sibelius, and Media Composer customers are signing up for annual contracts by the busload. The strong guidance rests on a 78% increase in subscription revenue, which gives Avid a more predictable stream of renewable sales. The second quarter is a seasonally soft period, but the rising renewable sales should result in total revenue growth of approximately 15%. The company added 28,000 net new subscribers in the first quarter, boosting the subscription-based customer list by 41% in comparison to the year-ago quarter.

"We are not saying we are at the end of the business impacts from the pandemic, but we are continuing to see more of our customers returning to business as usual and making key investments," CEO Jeff Rosica said on the earnings call. "We will continue to focus on improving efficiency and maintaining the cost reduction initiatives that we rolled out last year."

Avid's quarter-by-quarter results are stabilizing as the shift toward renewable-revenue contracts reduces the effects of seasonal variation. It's not hard to see why investors are embracing Avid's successful strategy shift. The stock has more than tripled since the start of 2020 and is setting fresh multiyear highs at this point.

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