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    DUOL   US26603R1068

DUOLINGO, INC.

(DUOL)
  Report
Delayed Nasdaq  -  04:00 2022-09-30 pm EDT
95.23 USD   +0.38%
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DUOLINGO, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/05/2022 | 06:07am EDT
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

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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 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 over 40 languages to over 49 million monthly active users as of June 30,
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 June 30,
(Operating metrics are in millions)       2022                    2021
Operating Metrics
Monthly active users (MAUs)              49.5                    37.9
Daily active users (DAUs)                13.2                     9.1
Paid subscribers (at period end)          3.3                     1.9


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                                            Three Months Ended June 30,                   Six Months Ended June 30,
                                              2022                  2021                  2022                  2021
Operating Metrics
Subscription bookings                  $        74,123          $   48,941          $      152,662          $   99,407
Total bookings                         $        97,467          $   64,538          $      199,521          $  130,367

Non-GAAP Financial Measures
Net loss (GAAP)                        $       (15,045)         $     (176)         $      (27,199)         $  (13,648)
Adjusted EBITDA                        $         4,198          $    3,702          $        8,144          $    4,573

Net cash provided by operating
activities (GAAP)                      $        12,662          $     (896)         $       33,289          $    4,227
Free cash flow                         $         9,880          $    2,104          $       28,808          $    5,929


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 49.5 million and 37.9 million MAUs for the three months
ended June 30, 2022 and 2021, respectively, representing an increase of 31% from
the prior year period. We grew MAUs through product initiatives that made the
app more social and engaging and through 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 13.2 million and 9.1 million DAUs for the three months
ended June 30, 2022 and 2021, respectively, representing an increase of 44% from
the prior year period. The DAU / MAU ratio, which we believe is an indicator of
user engagement, increased to 26.6% from 24.2% a year ago. We grew DAUs through
many of the same product initiatives as we grew MAUs, such as 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
Super Duolingo (formerly called 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 June 30, 2022 and 2021, we had approximately 3.3 million and 1.9 million
paid subscribers, respectively, representing an increase of 71% from the prior
year period. We grew paid subscribers through product improvements that
increased the size of our free user base, which 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 Super Duolingo. Total
bookings represent the amounts we receive

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from purchases of a subscription to Super Duolingo, a purchase of our English
assessment test, the Duolingo English Test, an in-app purchase of 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 June 30, 2022 and 2021 we generated $74.1 million and
$48.9 million of subscription bookings, respectively, representing an increase
of 51% from the prior year period. For the six months ended June 30, 2022 and
2021, we generated $152.7 million and $99.4 million of subscription bookings,
respectively, representing an increase of 54% from the prior year period. 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 June 30, 2022 and 2021 we generated $97.5 million and
$64.5 million, of total bookings, respectively, representing an increase of 51%
from the prior year period. For the six months ended June 30, 2022 and 2021, we
generated $199.5 million and $130.4 million total bookings, respectively,
representing an increase of 53% from the prior year period. 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 financial
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 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 June 30,                    Six Months Ended June 30,
(In thousands)                                2022                    2021                  2022                  2021
Net loss                               $        (15,045)         $      (176)         $      (27,199)         $  (13,648)
Interest (income) expense, net                     (669)                  (1)                   (702)                 (3)
Provision for income taxes                          141                    1                     169                  18
Depreciation and amortization                     1,170                  636                   1,944               1,236
Stock-based compensation expenses                18,494                2,907                  33,594               5,458
related to equity awards (1)
IPO and public company costs (2)                    107                1,213                     338               1,693
Tender offer-related costs (3)                        -                    -                       -               5,599
Other expenses (4)                                    -                 (878)                      -               4,220
Adjusted EBITDA                        $          4,198          $     3,702          $        8,144          $    4,573


________________

(1)In addition to stock-compensation expense of $18,114 and $2,907 for the three
months ended June 30, 2022 and 2021, respectively, and $32,700 and $5,458 for
the six months ended June 30, 2022 and 2021, respectively, this includes costs
incurred related to taxes paid as follows:

                                                   Three Months Ended June 30,                       Six Months Ended June 30,
(In thousands)                                     2022                     2021                     2022                    2021
Research and development                   $              147          $          -          $             373          $          -
Sales and marketing                                         9                     -                         24                     -
General and administrative                                224                     -                        497                     -
Total                                      $              380          $          -          $             894          $          -



(2)IPO and public company costs include costs associated with IPO readiness
incurred in 2021 and costs associated with the establishment of our public
company structure and processes, including consultant costs, a one-time fee
associated with the set-up of our initial proxy statement, and fees paid to
consultants and Deloitte for work in connection with remediation of the material
weakness disclosed in our Annual Report on Form 10-K. These costs are included
our Unaudited Condensed Consolidated Statements of Operations and Comprehensive
Loss as follows:

© Edgar Online, source Glimpses

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