Duolingo, Inc.

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K and in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K. The following discussion contains forward-looking statements, such as those relating to our plans, objectives, expectations, intentions, and beliefs, that involve risks, uncertainties and assumptions. Our actual results could differ materially from these forward-looking statements as a result of many factors, including those discussed in “Special Note Regarding Forward-Looking Statements,” and included elsewhere in this Quarterly Report on Form 10-Q, and in Part I, Item 1A. “Risk Factors,” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any periods in the future.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K and in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K. The following discussion contains forward-looking statements, such as those relating to our plans, objectives, expectations, intentions, and beliefs, that involve risks, uncertainties and assumptions. Our actual results could differ materially from these forward-looking statements as a result of many factors, including those discussed in “Special Note Regarding Forward-Looking Statements,” and included elsewhere in this Quarterly Report on Form 10-Q, and in Part I, Item 1A. “Risk Factors,” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our

Previous wording

Our flagship app has organically become the world’s most popular way to learn languages and the top-grossing Education app in the App Stores, offering courses in over 40 languages to over 135 million monthly active users for the three months ended September 30, 2025. We believe that we have become the preeminent online destination for language learning due to our beautifully designed products, exceptional user engagement, and demonstrated learning efficacy.

Current wording

Our flagship app has become the world’s most popular way to learn languages and the top-grossing Education app in the App Stores, offering over 250 total language courses to over 55 million daily active users for the three months ended March 31, 2026. We believe that we have become the preeminent online destination for language learning due to our beautifully designed products, exceptional user engagement, and demonstrated learning efficacy.

Previous wording

We regularly review a number of key operating metrics and non-GAAP financial measures to evaluate our business, measure our performance, identify trends, prepare financial projections and make business decisions. The measures set forth below should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”). Monthly active users (MAUs) and daily active users (DAUs), along with paid subscribers, subscription bookings and total bookings, are operating metrics that help inform management about the underlying growth in users of our platform, and are a measure of our monetization efforts. To calculate the year-over-year change in MAUs and DAUs for a given period, we subtract the average for the same period in the previous year from the average for the same period in the current year and divide the result by the average for the same period in the previous year. Other companies, including companies in our industry, may calculate these measures differently or not at all, which reduces their usefulness as comparative measures.

Current wording

We regularly review a number of key operating metrics and non-GAAP financial measures to evaluate our business, measure our performance, identify trends, prepare financial projections and make business decisions. The measures set forth below should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”). Daily active users (DAUs), along with paid subscribers, subscription bookings and total bookings, are operating metrics that help inform management about the underlying growth in users of our platform, and are a measure of our monetization efforts. To calculate the year-over-year change in DAUs for a given period, we subtract the average for the same period in the previous year from the average for the same period in the current year and divide the result by the average for the same period in the previous year. Other companies, including companies in our industry, may calculate these measures differently or not at all, which reduces their usefulness as comparative measures.

Previous wording

We had approximately 135.3 million and 113.1 million MAUs for the three months ended September 30, 2025 and 2024, respectively, representing an increase of 20% from the prior year period. We grew MAUs through product initiatives designed to make the app more social and engaging, through marketing, and through improving our courses, all of which we believe helped us attract new users, retain existing users, and reengage the millions of former users who return to our Duolingo App.

Current wording

We had approximately 56.5 million and 46.6 million DAUs for the three months ended March 31, 2026 and 2025, respectively, representing an increase of 21% from the prior year period, driven largely by an increase in retention of current users. We grew DAUs through a combination of product initiatives and marketing. Product improvements, such as making the app more social and engaging, helped attract new users, retain existing users, and reengage former users, while marketing expanded our reach.

Previous wording

As of September 30, 2025 and 2024, we had approximately 11.5 million and 8.6 million paid subscribers, respectively, representing an increase of 34% from the prior year period. We grew paid subscribers through product initiatives designed to make Duolingo subscription offerings more appealing, which we believe helped us attract new subscribers and retain existing subscribers.

Current wording

As of March 31, 2026 and 2025, we had approximately 12.5 million and 10.3 million paid subscribers, respectively, representing an increase of 21% from the prior year period. We grew paid subscribers through product initiatives designed to make our subscription offerings more appealing, which helped attract new subscribers and retain existing subscribers.

Previous wording

Subscription Bookings and Total Bookings. Subscription bookings represent the amounts we receive from a purchase of any Duolingo subscription offering. Total bookings include subscription bookings, income from advertising networks for advertisements served to our users, purchases of the Duolingo English Test, and in-app purchases of virtual goods. We believe bookings provide an indication of trends in our operating results, including cash flows, that are not necessarily reflected in our revenues because we recognize subscription revenues ratably over the lifetime of a subscription, the majority of which are twelve months in duration.

Current wording

Subscription Bookings and Total Bookings. Subscription bookings represent the amounts we receive from a purchase of any Duolingo subscription offering. Total bookings include subscription bookings, income from advertising networks for advertisements served to our users, purchases of the Duolingo English Test, and in-app purchases of virtual goods ("IAPs"). We believe bookings provide an indication of trends in our operating results, including cash flows, that are not necessarily reflected in our revenues because we recognize subscription revenues ratably over the lifetime of a subscription, the majority of which are twelve months in duration.

Previous wording

For the three months ended September 30, 2025 and 2024 we generated $281.9 million and $211.5 million of total bookings, respectively, representing an increase of 33% from the prior year period. For the nine months ended September 30, 2025 and 2024, we generated $821.6 million and $599.0 million total bookings, respectively, representing an increase of 37% from the prior year period. We grew total bookings primarily through growth in subscription bookings as noted above.

Current wording

For the three months ended March 31, 2026 and 2025, we generated $308.5 million and $271.6 million total bookings, respectively, representing an increase of $36.8 million or 14% from the prior year period. We grew total bookings primarily through growth in subscription bookings as noted above.

Previous wording

Monthly active users (MAUs). MAUs are defined as unique users who engage with our Duolingo App or the learning section of our website each month. MAUs are reported for a measurement period by taking the average of the MAUs for each calendar month in that measurement period. The measurement period for MAUs is the three months ended September 30, 2025 and the same period in the prior year where applicable, and the analysis of results is based on those periods. MAUs are a measure of the size of our global active user community on Duolingo.

Current wording

Monthly active users (MAUs). MAUs are defined as unique users who engage with our Duolingo App or the learning section of our website each month. MAUs are reported for a measurement period by taking the average of the MAUs for each calendar month in that measurement period. The measurement period for MAUs is the three months ended March 31, 2026 and the same period in the prior year where applicable, and the analysis of results is based on those periods. MAUs are a supplemental measure and help illustrate the size of our global active user community on Duolingo.

Previous wording

We use certain non-GAAP financial measures to supplement our Unaudited Condensed Consolidated Financial Statements, which are presented in accordance with GAAP. These non-GAAP financial measures include Adjusted EBITDA, free cash flow and constant currency measures. We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. By excluding certain items that may not be indicative of our recurring core operating results, we believe that Adjusted EBITDA, free cash flow and constant currency provide meaningful supplemental information regarding our performance. The effect of currency exchange rates on our business is an important factor in understanding period to period comparisons. We use non-GAAP constant currency measures and non-GAAP percentage change in constant currency measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Accordingly, we believe these non-GAAP financial measures are useful to investors and others because they allow for additional information with respect to financial measures used by management in its financial and operational decision-making and they may be used by our institutional investors and the analyst community to help them analyze the health of our business. However, there are a number of limitations related to the use of non-GAAP financial measures, and these non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with GAAP. Other companies, including companies in our industry, may calculate these non-GAAP financial measures differently or not at all, which reduces their usefulness as comparative measures.

Current wording

We use certain non-GAAP financial measures to supplement our reported financial results, which are presented in accordance with GAAP. These non-GAAP financial measures include Adjusted EBITDA, free cash flow and constant currency measures. We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. By excluding certain items that may not be indicative of our recurring core operating results, we believe that Adjusted EBITDA, free cash flow and constant currency provide meaningful supplemental information regarding our performance. The effect of currency exchange rates on our business is an important factor in understanding period to period comparisons. We use non-GAAP constant currency measures and non-GAAP percentage change in constant currency measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Accordingly, we believe these non-GAAP financial measures are useful to investors and others because they allow for additional information with respect to financial measures used by management in its financial and operational decision-making and they may be used by our institutional investors and the analyst community to help them analyze the health of our business. However, there are a number of limitations related to the use of non-GAAP financial measures, and these non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with GAAP. Other companies, including companies in our industry, may calculate these non-GAAP financial measures differently or not at all, which reduces their usefulness as comparative measures.

Previous wording

Adjusted EBITDA. Adjusted EBITDA is defined as net income excluding interest income, income taxes, depreciation and amortization, stock-based compensation expenses related to equity awards, transaction costs related to acquisitions and acquisition earn-out costs. Beginning in Q3 2025, we expanded our Adjusted EBITDA definition to include integration costs related to acquisitions. Adjusted EBITDA is used by management to evaluate the financial performance of our business and we present Adjusted EBITDA because we believe it is helpful in highlighting trends in our operating results and that it is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. The following table presents a reconciliation of our net income, the most directly comparable financial measure presented in accordance with GAAP, to Adjusted EBITDA.

Current wording

Adjusted EBITDA. Adjusted EBITDA is defined as net income excluding interest income, income taxes, depreciation and amortization, stock-based compensation expenses related to equity awards, including employer payroll taxes related to equity transactions, and acquisition earn-out costs. Adjusted EBITDA is used by management to evaluate the financial performance of our business and we present Adjusted EBITDA because we believe it is helpful in highlighting trends in our operating results and that it is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. The following table presents a reconciliation of our net income, the most directly comparable financial measure presented in accordance with GAAP, to Adjusted EBITDA.

Previous wording

(2)In addition to stock-based compensation expense of $35.6 million and $29.0 million for the three months ended September 30, 2025 and 2024, respectively, and $101.2 million and $80.7 million for the nine months ended September 30, 2025 and 2024, respectively, this includes costs incurred related to taxes paid on equity transactions as follows:

Current wording

(1)In addition to stock-based compensation expense of $34.6 million and $31.0 million for the three months ended March 31, 2026 and 2025, respectively, this includes costs incurred related to taxes paid on equity transactions as follows:

Previous wording

(4)Represents costs incurred related to the earn-out payments on acquisitions, which is included within General and administrative expense within our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income.

Current wording

(2)Represents costs incurred related to the earn-out payments on acquisitions, which is included within General and administrative expense within our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income.

Previous wording

For the three months ended September 30, 2025 and 2024, we generated Adjusted EBITDA of $80.0 million and $47.5 million, respectively. For the nine months ended September 30, 2025 and 2024, we generated Adjusted EBITDA of $221.5 million and $139.6 million, respectively. Adjusted EBITDA increased as compared to the comparative periods as a result of higher revenue, and was partially offset by an increase in operating expenses driven primarily by headcount growth.

Current wording

For the three months ended March 31, 2026 and 2025, we generated Adjusted EBITDA of $83.4 million and $62.8 million, respectively, representing an increase of $20.6 million. Adjusted EBITDA increased as compared to the comparative periods for the reasons noted above in net income.

Previous wording

Free Cash Flow. Free cash flow is defined as net cash provided by operating activities, less capitalized software development costs and purchases of property and equipment. Beginning in the first quarter of 2025, we have aligned our calculation of free cash flow to this definition, and prior periods in this Quarterly Report on Form 10-Q have been recast to conform to this presentation. We believe that free cash flow is a measure of liquidity that provides useful information to our management, investors and others in understanding and evaluating the strength of our liquidity and future ability to generate cash that can be used for strategic opportunities or investing in our business. Free cash flow has certain limitations in that it does not represent our residual cash flow for discretionary expenditures and our non-discretionary commitments. The following table presents a reconciliation of net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP, to free cash flow:

Current wording

Free Cash Flow. Free cash flow is defined as net cash provided by operating activities, less capitalized software development costs and purchases of property and equipment. We believe that free cash flow is a measure of liquidity that provides useful information to our management, investors and others in understanding and evaluating the strength of our liquidity and future ability to generate cash that can be used for strategic opportunities or investing in our business. Free cash flow has certain limitations in that it does not represent our residual cash flow for discretionary expenditures and our non-discretionary commitments. The following table presents a reconciliation of net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP, to free cash flow:

Previous wording

We generate revenues primarily from the sale of subscriptions. The term-length of our subscription agreements are primarily monthly or annual, with the family plan offered as an annual subscription. We also generate revenue from advertising, the in-app sale of virtual goods, and the Duolingo English Test. We may run experiments that result in a different mix of revenue from these levers in the future. Duo’s Taquería also generates a small portion of our revenue.

Current wording

We generate revenues primarily from the sale of subscriptions. The term-length of our subscription agreements are primarily monthly or annual, with the family plan offered as an annual subscription. We also generate revenue from advertising, the in-app sale of virtual goods, and the Duolingo English Test. We may run experiments that result in a different mix of revenue from these levers in the future.

Previous wording

Cost of revenues predominantly consists of third-party payment processing fees charged by various distribution channels in addition to hosting fees and generative AI costs. To a much lesser extent, cost of revenues includes customer support costs, such as contractor fees, wages and stock-based compensation for certain employees working in customer support. It also includes the amortization of revenue generating capitalized software, and depreciation of certain property and equipment.

Current wording

Cost of revenues predominantly consists of third-party payment processing fees charged by various distribution channels in addition to hosting fees and AI costs. To a much lesser extent, cost of revenues includes customer support costs, such as contractor fees, wages and stock-based compensation for certain employees working in customer support. It also includes the amortization of revenue generating capitalized software, and depreciation of certain property and equipment.

Previous wording

We intend to continue to invest additional resources in our infrastructure to expand the capabilities of our platform and allow our users to realize the full benefit of our products. The level, timing, and relative investment in these areas could affect our cost of revenues in the future.

Current wording

We intend to continue to invest in the development and enhancement of our products to expand their capabilities and allow our users to realize the full benefit of our offerings. The level, timing, and relative investment in these areas could affect our cost of revenues in the future.

Previous wording

Income taxes represent the tax impact associated with our operations under the tax laws of the jurisdictions in which we operate. In addition to the U.S., we also operate in foreign jurisdictions that have different statutory rates. Our effective tax rates will vary depending on the relative proportion of foreign to domestic income, changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws.

Current wording

Income taxes represent the tax impact associated with our operations under the tax laws of the jurisdictions in which we operate. In addition to the U.S., we also operate in foreign jurisdictions that have different statutory rates. Our effective tax rate may vary based on the relative proportion of foreign to domestic income, the tax effects of stock-based compensation (which can fluctuate with our stock price), and changes in tax laws.

Previous wording

Comparison of the three and nine months ended September 30, 2025 and 2024

Current wording

Comparison of the three months ended March 31, 2026 and 2025

Previous wording

Revenues increased by $79.1 million, or 41%, to $271.7 million during the three months ended September 30, 2025, from revenues of $192.6 million during the three months ended September 30, 2024. Revenues increased $216.2 million, or 40%, to $754.7 million during the nine months ended September 30, 2025, from revenues of $538.5 million during the nine months ended September 30, 2024. The main drivers of the increases were:

Current wording

Revenues increased by $61.2 million, or 27%, to $292.0 million during the three months ended March 31, 2026, from revenues of $230.7 million during the three months ended March 31, 2025. The main drivers of the increases were:

Previous wording

•Subscription revenue increased by $71.9 million, or 46%, to $229.5 million during the three months ended September 30, 2025 and $197.9 million, or 46%, to $631.2 million during the nine months ended September 30, 2025, primarily due to an increase in the average number of paid subscribers during each period;

Current wording

•Subscription revenue increased $59.9 million, or 31%, to $250.9 million during the three months ended March 31, 2026, primarily due to growth in the average number of paid subscribers, and to a lesser extent, an increase in average revenue per user.

Previous wording

September 30, 2025, primarily due to increased advertising revenue, resulting from an increase in DAUs, which resulted in increased advertisements served.

Current wording

•Other revenue increased $1.3 million, or 3%, to $41.1 million during the three months ended March 31, 2026, primarily due to increased advertising revenue, resulting from an increase in DAUs and price per ad served.

Previous wording

Research and Development. Research and development expense increased by $19.8 million, or 32%, to $82.7 million during the three months ended September 30, 2025 from $62.9 million during the three months ended September 30, 2024. The increase was mainly due to:

Current wording

Research and Development. Research and development expense increased by $12.6 million, or 18%, to $83.0 million during the three months ended March 31, 2026 from $70.4 million during the three months ended March 31, 2025. The increase was mainly due to net personnel costs of $9.8 million, driven primarily by the growth in headcount, including increased stock-based compensation expenses related to equity awards of $3.9 million, and increased software and AI costs of $2.2 million.

Previous wording

Sales and Marketing. Sales and marketing expense increased by $9.5 million, or 37%, to $35.1 million during the three months ended September 30, 2025 from $25.6 million during the three months ended September 30, 2024

Current wording

Sales and Marketing. Sales and marketing expense increased by $12.6 million, or 47%, to $39.2 million during the three months ended March 31, 2026 from $26.7 million during the three months ended March 31, 2025. This increase was mainly due to increased direct marketing expenses of $10.6 million.

Previous wording

General and Administrative. General and administrative expense increased by $5.6 million, or 15%, to $44.0 million during the three months ended September 30, 2025 from $38.4 million during the three months ended September 30, 2024. This increase was mainly due to:

Current wording

General and Administrative. General and administrative expense increased by $2.9 million, or 7%, to $46.3 million during the three months ended March 31, 2026 from $43.5 million during the three months ended March 31, 2025. This increase was mainly due to increased facilities and office expenses of $2.8 million.

Previous wording

Interest income increased by $0.5 million, or 5%, to $11.8 million during the three months ended September 30, 2025, from $11.2 million during the three months ended September 30, 2024. Interest income increased by $1.6 million, or 5%, to $33.6 million during the nine months ended September 30, 2025, from $32.0 million during the nine months ended September 30, 2024. Both period increases were due to higher average interest-bearing balances partially offset by slightly lower interest rates.

Current wording

Interest income increased by $1.4 million, or 13%, to $11.8 million during the three months ended March 31, 2026, from $10.4 million during the three months ended March 31, 2025 due to higher average interest-bearing balances partially offset by lower interest rates.

Previous wording

Other (expense) income, net increased by $1.1 million, during the three months ended September 30, 2025, and $2.9 million during the nine months ended September 30, 2025, compared to the same respective prior year periods, mainly from the impact from changes in foreign currency rates.

Current wording

Other (expense) income, net was $0.8 million during the three months ended March 31, 2026, mainly from the impact from changes in foreign currency rates compared to $1.0 million of income during the three months ended March 31, 2025.

Previous wording

As of September 30, 2025, we had $1,011.5 million in cash and cash equivalents and $109.9 million of short-term investments. Our cash and cash equivalents primarily consist of bank deposits and money market funds. Our short-term investments consist mainly of corporate debt securities, certificates of deposit, and commercial paper.

Current wording

As of March 31, 2026, we had $1,138.6 million in cash and cash equivalents and $113.0 million of short-term investments. Our cash and cash equivalents primarily consist of bank deposits and money market funds. Our short-term investments consist mainly of corporate debt securities, U.S. Treasury securities and commercial paper.

Previous wording

We believe that our existing cash and cash equivalents, short-term investments and cash flow from operations will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our subscription growth rate and renewal activity, the timing of cash received from our payment processing platforms, the expansion and efficacy of our sales and marketing activities, the research and development investment related to the introduction of new products and the enhancements to existing products, and the current uncertainty in the global markets impacting, for example, consumer spending, inflation and foreign currency exchange rates. If we cannot meet our future capital requirements, we may be required to seek additional liquidity. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business and financial condition and results of operations.

Current wording

We believe that our existing cash and cash equivalents, short-term investments and cash flow from operations will be sufficient to support working capital and capital expenditure requirements, and any future share repurchases, for at least the next 12 months. Our future capital requirements will depend on many factors, including our subscription growth rate and renewal activity, the timing of cash received from our payment processing platforms, the expansion and efficacy of our sales and marketing investments, the research and development investment related to the introduction of new products and the enhancements to existing products, and the current uncertainty in the global markets impacting, for example, consumer spending, inflation and foreign currency exchange rates. If we cannot meet our future capital requirements, we may be required to seek additional liquidity. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business and financial condition and results of operations.

Previous wording

A substantial source of our cash from operations comes from deferred revenue, which is included in the liabilities section of our Unaudited Condensed Consolidated Balance Sheet. Deferred revenues consists of the unearned portion of customer billings, which is recognized as revenue in accordance with our revenue recognition policy. As of September 30, 2025, we had deferred revenues of $441.7 million, which is recorded as a current liability and expected to be recognized as revenue in the next 12 months, provided all other revenue recognition criteria have been met.

Current wording

A substantial source of our cash from operations comes from deferred revenue, which is included in the liabilities section of our Unaudited Condensed Consolidated Balance Sheet. Deferred revenues consist of the unearned portion of customer billings, primarily related to subscription offerings, which is recognized as revenue in accordance with our revenue recognition policy. As of March 31, 2026, we had deferred revenues of $513.3 million, which is recorded as a current liability and expected to be recognized as revenue in the next 12 months, provided all other revenue recognition criteria have been met.

Previous wording

Cash provided by operating activities increased by $78.4 million, or 39%, to $280.5 million for the nine months ended September 30, 2025 from $202.2 million for the nine months ended September 30, 2024. This increase was primarily driven by higher net income during the current period, excluding non-cash items. Additionally, growth in deferred revenue contributed to the increase in cash provided by operating activities.

Current wording

Cash provided by operating activities increased by $45.1 million, or 43%, to $150.8 million for the three months ended March 31, 2026 from $105.6 million for the three months ended March 31, 2025. This increase was primarily driven by higher operating income and changes in working capital.