DUOLINGO, INC.
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
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-------------------------------------------------------------------------------- actual results could differ materially from these forward-looking statements as a result of many factors, including those discussed in Part II, Item 1A. "Risk Factors," "Special Note Regarding Forward-Looking Statements," and included elsewhere in this Quarterly Report on Form 10-Q, and in 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. Our historical results are not necessarily indicative of the results that may be expected for any periods in the future. Amounts reported in millions are rounded based on the amounts in thousands. As a result, the sum of the components reported in millions may not equal the total amount reported in millions due to rounding. In addition, percentages presented are calculated from the underlying numbers in thousands and may not add to their respective totals due to rounding.
Overview
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 40 languages to approximately 49 million monthly active users as ofMarch 31, 2022 . 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.
Key Operating Metrics and Non-GAAP Financial Measures
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 GAAP. Monthly
active users (MAUs) and daily active users (DAUs), along with paid subscribers,
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.
Three Months Ended March 31,
(Operating metrics are in millions) 2022 2021
Operating Metrics
Monthly active users (MAUs) 49.2 39.9
Daily active users (DAUs) 12.5 9.5
Paid subscribers (at period end) 2.9 1.8
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Three Months Ended
2022 2021
Operating Metrics
Subscription bookings $ 78,539 $ 50,466
Total bookings $ 102,054 $ 65,830
Non-GAAP Financial Measures
Net loss (GAAP) $ (12,154) $ (13,472)
Adjusted EBITDA $ 3,946 $ 871
Net cash provided by operating activities (GAAP) $ 20,627 $ 5,123
Free cash flow $ 18,928 $ 3,825
Operating Metrics
Monthly active users (MAUs). MAUs are defined as unique Duolingo users who
engage with our mobile language learning application or the language 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. MAUs are a measure of the size of our global active user community on
Duolingo .
We had approximately 49.2 million and 39.9 million MAUs for the three months
ended March 31, 2022 and 2021, respectively, representing an increase of 23%. We
grew MAUs through product initiatives that made the app more social and engaging
and through brand marketing, both of which helped us attract new users, retain
existing users, and reengage the millions of former users who return to our
language learning app.
Daily active users (DAUs). DAUs are defined as unique Duolingo users who engage
with our mobile language learning application or the language learning section
of our website each calendar day. DAUs are reported for a measurement period by
taking the average of the DAUs for each day in that measurement period. DAUs are
a measure of the consistent engagement of our global user community on Duolingo .
We had approximately 12.5 million and 9.5 million DAUs for the three months
ended March 31, 2022 and 2021, respectively, representing an increase of 31%.
The DAU / MAU ratio, which we believe is an indicator of user engagement,
increased to 25% from 24% a year ago. We grew DAUs through many of the same
initiatives as we grew MAUs, like making the product more fun and engaging, as
well as through our marketing efforts.
Paid Subscribers. Paid subscribers are defined as users who pay for access to
Duolingo Plus, including subscribers who pay for a family plan, and had an
active subscription as of the end of the measurement period. Each unique user
account is treated as a single paid subscriber regardless of whether such user
purchases multiple subscriptions, and the count of paid subscribers does not
include users who are currently on a free trial or who are non-paying members of
a family plan.
As of March 31, 2022 and 2021, we had approximately 2.9 million and 1.8 million
paid subscribers, respectively, representing an increase of 60%. We grew paid
subscribers through product improvements that increased the size of our free
user base, led to higher conversion of free users to paid subscribers, and by
better retaining subscribers.
Subscription Bookings and Total Bookings. Subscription bookings represent the
amounts we receive from purchases of a subscription to Duolingo Plus. Total
bookings represent the amounts we receive from purchases of a subscription to
Duolingo Plus, a purchase of a Duolingo English Test, an in-app purchase
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for a virtual good and from advertising networks for advertisements served to
our users. 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, which is generally from one to twelve months.
For the three months ended March 31, 2022 and 2021, we generated $78.5 million
and $50.5 million of subscription bookings, respectively, representing an
increase of 56%. We grew subscription bookings by selling more first-time and
renewal subscriptions. As we grow our user base, convert a greater proportion of
users to first-time subscribers, increase renewal rates, and increase the
proportion of re-subscribers, we increase subscription bookings.
For the three months ended March 31, 2022 and 2021, we generated $102.1 million
and $65.8 million total bookings, respectively, representing an increase of 55%.
We grew total bookings through the growth in subscription bookings noted above,
in addition to growth in Advertising, the Duolingo English Test, and other
bookings.
Non-GAAP Financial Measures
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 and free cash flow. 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 and free cash flow provide
meaningful supplemental information regarding our performance. 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 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 financials
measures differently or not at all, which reduces their usefulness as
comparative measures.
Adjusted EBITDA. Adjusted EBITDA is defined as net loss excluding interest
(income) expense, net, income tax provision, depreciation and amortization,
Initial Public Offering ("IPO") and public company readiness costs, stock-based
compensation expenses related to equity awards, tender offer-related costs and
other expenses. 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
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--------------------------------------------------------------------------------evaluate companies in our industry. The following table presents a reconciliation of our net loss, the most directly comparable financial measure presented in accordance with GAAP, to Adjusted EBITDA.
Three Months Ended
March 31,
(In thousands) 2022 2021
Net loss $ (12,154) $ (13,472)
Interest (income) expense, net (33) (2)
Provision for income taxes 28 17
Depreciation and amortization 774 600
Stock-based compensation expenses related to equity awards (1) 15,100 2,551
IPO and public company readiness costs (2) 231 480
Tender offer-related costs (3) - 5,599
Other expenses (4) - 5,098
Adjusted EBITDA $ 3,946 $ 871
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(1)In addition to stock-compensation expense of $14,586 and $2,551 for the three
months ended March 31, 2022 and 2021, respectively, this includes costs incurred
related to taxes paid during three months ended March 31, 2022 on equity
transactions of $514 , of which $226 was included within Research and
development, $15 was included within Sales and marketing and $273 was included
within General and administrative in our Unaudited Condensed Consolidated
Statements of Operations and Comprehensive Loss.
(2)IPO and public company readiness costs include costs associated with IPO readiness and establishment of our public company structure and processes, including consultant costs. These costs are included our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss as follows:
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