Core Insights - Duolingo, Inc. reported quarterly earnings of $0.49 per share, exceeding the Zacks Consensus Estimate of $0.36 per share, and showing significant growth from $0.06 per share a year ago, resulting in an earnings surprise of 36.11% [1] - The company achieved revenues of $192.59 million for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 2.08% and increasing from $137.62 million year-over-year [2] - Duolingo has consistently outperformed consensus EPS and revenue estimates over the last four quarters [2] Earnings Outlook - The sustainability of Duolingo's stock price movement will depend on management's commentary during the earnings call and future earnings expectations [3][4] - The current consensus EPS estimate for the upcoming quarter is $0.46 on revenues of $201.42 million, and for the current fiscal year, it is $1.87 on revenues of $736.1 million [7] Industry Context - The Technology Services industry, to which Duolingo belongs, is currently ranked in the top 34% of over 250 Zacks industries, indicating a favorable outlook for stocks in this sector [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5][6]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2024 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___ to ___ Commission file number 001-40653 Duolingo, Inc. (Exact name of registrant as specified in its charter) Delaware 45-3055872 (State or other juri ...

[Shareholder Letter](index=5&type=section&id=Shareholder%20Letter) Duolingo's CEO highlights strong Q3 2024 performance, user growth, and product innovation, exceeding expectations [Q3 2024 Performance Overview](index=5&type=section&id=Q3%202024%20Performance%20Overview) Duolingo exceeded expectations in Q3 2024 with significant revenue, profitability, and user growth, leading to an upward revision of full-year guidance - The company exceeded expectations for top-line growth, profitability, and user growth, prompting an increase in its financial guidance for the remainder of the year[3](index=3&type=chunk) Q3 2024 Financial and User Highlights (YoY) | Metric | Q3 2023 | Q3 2024 | YoY Growth | | :--- | :--- | :--- | :--- | | Total Bookings | $153.6M | $211.5M | 38% | | Total Revenues | $137.6M | $192.6M | 40% | | Net Income | $2.8M | $23.4M | >100% | | Adjusted EBITDA | $22.5M | $47.5M | >100% | | Daily Active Users (DAUs) | 24.2M | 37.2M | 54% | | Paid Subscribers | 5.8M | 8.6M | 47% | [User Growth and Engagement](index=5&type=section&id=User%20Growth%20and%20Engagement) Duolingo achieved impressive 54% YoY DAU growth, driven by feature improvements and re-engagement, identifying long-term English learning opportunities - DAU growth of over **50% YoY** is particularly notable as it builds upon a **60%+ growth rate** in Q3 of the previous year, driven by compounding improvements to retention features like Friends Streak[5](index=5&type=chunk) - More than **50%** of the top-of-funnel growth in the past year came from returning users who had been inactive for over a month, highlighting successful re-engagement strategies[6](index=6&type=chunk) - The company sees a significant long-term growth opportunity in advanced English education, with over **2 million DAUs** currently learning intermediate English on the platform[7](index=7&type=chunk) [Product Innovation](index=6&type=section&id=Product%20Innovation) Duolingo enhanced its learning experience with new GenAI-powered features, including 'Video Call' in Duolingo Max, improving conversation practice - A new 'Video Call' feature was launched within Duolingo Max, allowing users to practice conversation skills in a low-pressure environment with an AI character that remembers past interactions[10](index=10&type=chunk) - Early data indicates that English learners are using the Video Call feature approximately **twice as much** as other language learners, validating its effectiveness for this key user group[11](index=11&type=chunk) - As of the end of Q3, Duolingo Max, including the new Video Call feature, was available to about **half** of the platform's Daily Active Users, with plans to expand availability to more users, primarily on Android, by year-end[11](index=11&type=chunk) [Financial Performance and Outlook](index=8&type=section&id=Financial%20Performance%20and%20Outlook) Duolingo's Q3 2024 financial results show strong growth in revenue, bookings, and profitability, leading to increased full-year guidance [Financial and Operating Highlights](index=8&type=section&id=Financial%20and%20Operating%20Highlights) Duolingo reported strong Q3 2024 YoY growth across all key metrics, with surging user engagement and significant financial improvements Q3 2024 Key Metrics Summary (YoY) | Metric | Q3 2023 | Q3 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Monthly active users (MAUs) | 83.1M | 113.1M | 36% | | Daily active users (DAUs) | 24.2M | 37.2M | 54% | | Paid subscribers (period end) | 5.8M | 8.6M | 47% | | Total bookings | $153.6M | $211.5M | 38% | | Revenues | $137.6M | $192.6M | 40% | | Net income | $2.8M | $23.4M | >100% | | Adjusted EBITDA | $22.5M | $47.5M | >100% | | Free cash flow | $33.5M | $52.7M | 57% | [Revenue and Bookings](index=10&type=section&id=Revenue%20and%20Bookings) Total bookings and revenues saw strong YoY growth in Q3 2024, primarily driven by increased paid subscribers, despite a slight gross margin dip - Total bookings grew **38% YoY** to **$211.5 million**, while revenues increased **40% YoY** to **$192.6 million**, primarily driven by growth in paid subscribers[18](index=18&type=chunk)[19](index=19&type=chunk) Revenues by Product Type (in millions) | Revenue Type | Q3 2023 | Q3 2024 | % Change | | :--- | :--- | :--- | :--- | | Subscription | $105.9 | $157.6 | 49% | | Other (1) | $31.7 | $35.0 | 10% | | **Total revenues** | **$137.6** | **$192.6** | **40%** | - Total gross margin declined slightly from **73.7%** in Q3 2023 to **72.9%** in Q3 2024. This was attributed to lower margins in 'other revenue' (Advertising, Duolingo English Test, etc.), despite an increase in the proportion of higher-margin subscription revenue[20](index=20&type=chunk) [Operating Expenses](index=11&type=section&id=Operating%20Expenses) Duolingo achieved strong operating leverage in Q3 2024, with expenses decreasing as a percentage of revenue, driven by faster revenue scaling - The company achieved operating leverage across all expense categories (R&D, S&M, G&A) on both a GAAP and non-GAAP basis by scaling revenue faster than operating expenses[22](index=22&type=chunk) Operating Expenses as a Percentage of Revenue (YoY) | Expense Category | GAAP % of Revenue (Q3'23 → Q3'24) | Non-GAAP % of Revenue (Q3'23 → Q3'24) | | :--- | :--- | :--- | | R&D | 37% → 33% | 27% → 24% | | S&M | 16% → 13% | 15% → 12% | | G&A | 24% → 20% | 15% → 13% | - Stock-based compensation (SBC) was the most significant adjustment to non-GAAP expenses, totaling **$30 million** in Q3 2024[21](index=21&type=chunk) [Profitability and Cash Flow](index=12&type=section&id=Profitability%20and%20Cash%20Flow) Profitability and cash generation significantly improved in Q3 2024, with Adjusted EBITDA more than doubling and robust free cash flow growth - Adjusted EBITDA increased by **$25.0 million YoY** to **$47.5 million**, with the Adjusted EBITDA margin expanding to **24.7%** from **16.3%** in the prior year, driven by revenue growth and operating leverage[23](index=23&type=chunk) - Free Cash Flow (FCF) grew to **$52.7 million**, representing a **27.3% FCF margin**, up from **$33.5 million** and a **24.3% margin** in Q3 2023. The increase was primarily due to higher net income[24](index=24&type=chunk) [Q4 and Full-Year 2024 Guidance](index=13&type=section&id=Q4%20and%20Full-Year%202024%20Guidance) Duolingo raised its full-year 2024 guidance, projecting revenues between $741.0 million and $744.0 million and Adjusted EBITDA between $188.3 million and $190.4 million Q4 and Full-Year 2024 Financial Guidance (in millions) | Metric | Q4 2024 Guidance | FY 2024 Guidance | | :--- | :--- | :--- | | Bookings | $244.5 - $247.5 | $843.5 - $846.5 | | Revenues | $202.5 - $205.5 | $741.0 - $744.0 | | Adjusted EBITDA | $48.6 - $50.8 | $188.3 - $190.4 | | Adjusted EBITDA margin | 24.0% - 24.7% | 25.4% - 25.6% | - A reconciliation for the forward-looking Adjusted EBITDA to GAAP net income is not provided due to the unreasonable effort required to predict certain items, such as stock-based compensation and legal expenses[26](index=26&type=chunk) [Appendix](index=14&type=section&id=Appendix) This section provides definitions for key operating metrics and non-GAAP financial measures, along with unaudited condensed consolidated financial statements and reconciliations [Key Metrics and Non-GAAP Definitions](index=14&type=section&id=Key%20Metrics%20and%20Non-GAAP%20Definitions) This section defines Duolingo's key operating metrics (MAUs, DAUs, Paid Subscribers, Bookings) and explains the use of non-GAAP financial measures - MAUs are the average of unique monthly users, DAUs are the average of unique daily users, and Paid Subscribers are users with an active subscription at period end, excluding free trials[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk) - Total Bookings include subscription purchases, advertising income, Duolingo English Test fees, and in-app purchases, providing an indication of cash flow trends not fully reflected in ratably recognized revenue[33](index=33&type=chunk) - The company uses non-GAAP measures like Adjusted EBITDA, Free Cash Flow, and non-GAAP operating expenses to evaluate period-to-period comparisons and believes they are useful for investors in analyzing the health of the business[36](index=36&type=chunk) [Unaudited Condensed Consolidated Financial Statements](index=17&type=section&id=Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Unaudited financial statements for Q3 2024 show strong financial position with increased assets, revenues, net income, and operating cash flow Condensed Balance Sheet (in thousands) | Account | Dec 31, 2023 | Sep 30, 2024 | | :--- | :--- | :--- | | Total Assets | $953,957 | $1,219,549 | | Total Liabilities | $298,456 | $397,096 | | Total Stockholders' Equity | $655,501 | $822,453 | Condensed Statement of Operations - Q3 (in thousands) | Account | Q3 2023 | Q3 2024 | | :--- | :--- | :--- | | Revenues | $137,624 | $192,594 | | Gross Profit | $101,370 | $140,414 | | Income from Operations | ($4,670) | $13,574 | | Net Income | $2,807 | $23,360 | Condensed Statement of Cash Flows - Nine Months Ended (in thousands) | Account | Sep 30, 2023 | Sep 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $104,421 | $202,169 | | Net cash used for investing activities | ($9,436) | ($106,965) | | Net cash (used for) provided by financing activities | ($1,428) | $11,595 | [Reconciliation of Non-GAAP Financial Measures](index=19&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) Detailed reconciliations from GAAP to non-GAAP measures for Q3 2024, including Adjusted EBITDA, operating expenses, and Free Cash Flow Reconciliation of Net Income to Adjusted EBITDA - Q3 2024 (in thousands) | Line Item | Amount | | :--- | :--- | | Net income | $23,360 | | Interest income | ($11,246) | | Provision for income taxes | $2,029 | | Depreciation and amortization | $2,876 | | Stock-based compensation | $29,990 | | Other adjustments | $499 | | **Adjusted EBITDA** | **$47,508** | Reconciliation of GAAP to Non-GAAP Operating Expense - Q3 2024 (in thousands) | Line Item | Amount | | :--- | :--- | | Total GAAP Operating Expense | $126,840 | | Less: Depreciation and amortization | ($1,479) | | Less: Stock-based compensation | ($29,970) | | Less: Other adjustments | ($499) | | **Non-GAAP Operating Expense** | **$94,892** | Reconciliation to Free Cash Flow - Q3 2024 (in thousands) | Line Item | Amount | | :--- | :--- | | Net cash provided by operating activities | $56,267 | | Less: Capitalized software & intangible assets | ($1,845) | | Less: Purchases of property and equipment | ($3,178) | | Plus: Other adjustments | $1,430 | | **Free cash flow** | **$52,674** |

Financial Performance - Total bookings for Q3 2024 were $211.5 million, a 38% increase YoY, with subscription bookings at $176.3 million, up 45% YoY [3][4] - Paid subscribers reached 8.6 million, a 47% increase YoY, while DAUs grew to 37.2 million, up 54% YoY, and MAUs reached 113.1 million, up 36% YoY [3][4] - Total revenues for Q3 2024 were $192.6 million, a 40% increase YoY, with subscription revenue contributing $157.6 million, up 49% YoY [3][5] - Net income for Q3 2024 was $23.4 million, compared to $2.8 million in the prior year quarter, while Adjusted EBITDA was $47.5 million, up from $22.5 million YoY [3][4] Operational Highlights - The company achieved strong growth in new and returning users, with the highest-ever family plan penetration and significant contributions from Duolingo Max [2][3] - The AI-powered Video Call feature drove adoption of Duolingo Max and increased conversational speaking practice, unlocking new opportunities in the global language learning market [3] - Free cash flow for Q3 2024 was $52.7 million, a 57% increase YoY, while net cash provided by operating activities was $56.3 million, up 49% YoY [3][4] Financial Outlook - For Q4 2024, the company expects total bookings between $244.5 million and $247.5 million, with revenues projected between $202.5 million and $205.5 million [6] - Full-year 2024 guidance includes total bookings of $843.5 million to $846.5 million and revenues of $741.0 million to $744.0 million [6] - Adjusted EBITDA for Q4 2024 is expected to be between $48.6 million and $50.8 million, with a margin of 24.0% to 24.7% [6] Market Position and Strategy - Duolingo is the leading mobile learning platform globally, with its flagship app being the most popular way to learn languages and the top-grossing app in the Education category on Google Play and the Apple App Store [10] - The company continues to invest in technology to provide a fun, engaging, and effective learning experience, while remaining committed to its mission of making the best education universally available [10]

Earnings and Financial Performance - Duolingo is scheduled to report its Q3 2024 results on November 6, 2024 [1] - The Zacks Consensus Estimate for Q3 earnings is 36 cents per share, reflecting a 500% YoY improvement [2] - Revenue consensus estimate is $188.7 million, indicating a 37.1% YoY increase [2] - Subscription revenue is expected to reach $153.9 million, showing 45.3% YoY growth [4] - In Q2 2024, revenue increased by 41% YoY, with net income rising to $24.4 million from $3.7 million [8] User and Subscriber Growth - Daily active users are expected to grow 55.9% YoY, while monthly active users are anticipated to increase 22.5% YoY [5] - Paid subscribers are projected to grow 45.5% YoY [5] - The company's strategy focuses on expanding its user base and converting users into subscribers [7] Stock Performance and Industry Comparison - Duolingo's stock has gained 28% year-to-date, underperforming the industry's 32.7% rally but outperforming the S&P 500's 20.5% rise [6] - Competitors Coursera and Chegg have seen declines of 64% and 85.3%, respectively, over the same period [7] Product and Monetization Strategy - Duolingo's success is driven by product excellence and innovation in language learning, using gamified techniques and a user-friendly interface [7] - The company has optimized subscription offerings, such as the family plan and Duolingo Max, contributing to growth through word-of-mouth [8] - Strong monetization efforts and expanding user base position the company for sustained success [9]

Wall Street analysts forecast that Duolingo, Inc. (DUOL) will report quarterly earnings of $0.36 per share in its upcoming release, pointing to a year-over-year increase of 500%. It is anticipated that revenues will amount to $188.67 million, exhibiting an increase of 37.1% compared to the year-ago quarter.Over the last 30 days, there has been no revision in the consensus EPS estimate for the quarter. This signifies the covering analysts' collective reconsideration of their initial forecasts over the course ...

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