Duolingo, Inc. (DUOL)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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.

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

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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 58 million daily active users for the three months ended June 30, 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.

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 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.

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(1) We primarily evaluate user engagement using DAUs, with MAUs as a supplementary metric. MAUs were 140.6 million and 128.3 million for the three months ended June 30, 2026 and 2025, respectively.

Operating Metrics

Daily active users (DAUs). DAUs are defined as unique users who engage with our Duolingo App or the 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. The measurement period for DAUs is the three months ended June 30, 2026 and the same period in the prior year where applicable, and the

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analysis of results is based on those periods. DAUs are a measure of the consistent engagement of our global user community on Duolingo.

We had approximately 58.7 million and 47.7 million DAUs for the three months ended June 30, 2026 and 2025, respectively, representing an increase of 23% 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.

Paid Subscribers. Paid subscribers are defined as users who pay for access to any Duolingo subscription offering 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, 2026 and 2025, we had approximately 12.7 million and 10.9 million paid subscribers, respectively, representing an increase of 17% 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.

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.

For the three months ended June 30, 2026 and 2025, we generated $250.3 million and $227.3 million of subscription bookings, respectively, representing an increase of $23.1 million or 10%, driven by growth in volume and price of subscriptions sold. For the six months ended June 30, 2026 and 2025, we generated $518.4 million and $459.4 million of subscription bookings, respectively, representing an increase of $58.9 million or 13%, driven by growth in volume and price of subscriptions sold.

For the three months ended June 30, 2026 and 2025, we generated $289.1 million and $268.0 million total bookings, respectively, representing an increase of $21.0 million or 8% from the prior year period. For the six months ended June 30, 2026 and 2025, we generated $597.5 million and $539.7 million total bookings, respectively, representing an increase of $57.9 million or 11% from the prior year period. We grew total bookings primarily through growth in subscription bookings.

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 June 30, 2026 and the same period in the prior year where

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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.

We had approximately 140.6 million and 128.3 million MAUs for the three months ended June 30, 2026 and 2025, respectively, representing an increase of 10% from the prior year period. We grew MAUs through the same product and marketing initiatives as DAUs.

Non-GAAP Financial Measures

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.

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, acquisition transaction and integration costs, acquisition earn-out costs, and impairment of capitalized software. 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

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table presents a reconciliation of our net income, the most directly comparable financial measure presented in accordance with GAAP, to Adjusted EBITDA.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes included elsewhere in this 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 I, Item 1A. “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” and included elsewhere in this 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 over 250 total language courses to over 130 million monthly active users for the three months ended December 31, 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.

Our Business Model

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How We Generate Revenue

We use a freemium business model that relies on premium subscription offerings, advertising, and in-app-purchases (IAPs) to produce revenue. We believe the following key attributes of our freemium subscription business model are core to our success.

•Large Market: There is an enormous pool of potential language learners globally that HolonIQ estimates at approximately 2 billion people.

•Free Users: Since the majority of our learning content is not behind a paywall, anyone can download the Duolingo App, use it for as long as they like, and complete any of our courses free of charge. Our users are composed of both new and reengaged users, which we draw from a large market of learners. We also work to keep existing users engaged in the product. This has allowed us to scale to more than 130 million MAUs for the three months ended December 31, 2025. We have seen these millions of learners provide two benefits to our business model:

◦They become advocates for Duolingo and support our growth through positive word-of-mouth for our product, which enables us to make very selective, efficient, and targeted marketing investments.

◦Our users complete nearly 2 billion exercises every day, generating large amounts of data that powers our high-volume A/B testing and novel AI techniques. We use this data and the insights that come from it to continually improve both engagement and efficacy.

•Paid Subscriber Conversion: We convert free users to paid subscribers over time. We see stronger conversion from users that recently joined or reengage with the platform, but also see learners who use our product for months or even years before they decide to subscribe. This allows us to enjoy economic benefits from users well into their tenure on the platform. As of December 31, 2025, subscribers made up 9.2% of our average MAUs over the last twelve months as compared to 8.8% of our average MAUs during the year ended December 31, 2024.

Subscription

Our subscription offerings as of the date of this filing are called Super Duolingo and Duolingo Max. Super Duolingo offers learners additional features to enhance their learning experience. Duolingo Max gives learners access to the existing features of Super Duolingo in addition to incremental features and exercises, such as Video Call.

Other Revenue

For users who are unable or unwilling to pay a subscription fee, we provide free access to our product and generate advertising revenue from the sale of display and video advertising delivered through advertising impressions. We generally enter into arrangements with the major programmatic advertising networks to monetize our advertising inventory. Our advertising revenue is primarily a function of the number of our free users, lessons completed by our free users, and our ability to provide innovative advertising placements that are relevant to our users and enhance returns for our advertising partners.

We also offer in-app purchases, (“IAPs”) which consist of learners purchasing one-time benefits within the app, such as “Streak Freezes” and “Timer Boosts.”

In addition to monetizing the Duolingo App, we generate revenue from the Duolingo English Test by charging test takers a one-time fee. University program acceptance is a driver of Duolingo English Test revenue. As of December 31, 2025, over 6,100 education programs around the world accept the Duolingo English Test results as proof of English proficiency for international student admissions, with over 5,300 of those being higher education programs. These include 24 of the top 25 undergraduate programs in the

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U.S. ranked by international enrollment, as well as top schools such as Yale, Stanford, MIT, Duke and Columbia.

Basis of Presentation

Items within Management's Discussion and Analysis of Financial Condition and Results of Operations include a discussion of changes between the years ended December 31, 2025 and 2024. For a discussion of changes from the year ended December 31, 2024 to the year ended December 31, 2023, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operation in Part II, Item 7. of our Annual Report on Form 10-K for the year ended December 31, 2024 (filed with the SEC on February 28, 2025).

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 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.

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(1)During the year ended December 31, 2025, the Company released the valuation allowance previously recorded against its federal and state deferred tax assets, resulting in a one-time income-tax benefit of $256.7 million.

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(2)The prior period has been recast to conform to current period presentation of free cash flow. See the definition of Free Cash Flow below for additional information.

Operating Metrics

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 December 31, 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.

We had approximately 133.1 million and 116.7 million MAUs for the three months ended December 31, 2025 and 2024, respectively, representing an increase of 14% from the prior year period. We grew MAUs 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.

Daily active users (DAUs). DAUs are defined as unique users who engage with our Duolingo App or the 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. The measurement period for DAUs is the three months ended December 31, 2025 and the same period in the prior year where applicable, and the analysis of results is based on those periods. DAUs are a measure of the consistent engagement of our global user community on Duolingo.

We had approximately 52.7 million and 40.5 million DAUs for the three months ended December 31, 2025 and 2024, respectively, representing an increase of 30% from the prior year period, driven largely by an increase in retention of current users supported by modest growth of new and reengaged users. The DAU / MAU ratio, which we believe is an indicator of user engagement, increased to 39.6% from 34.7% a year ago. We grew DAUs through many of the same product and marketing initiatives as MAUs, with a focus on increasing engagement and encouraging more frequent use.

Paid Subscribers. Paid subscribers are defined as users who pay for access to any Duolingo subscription offering 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 December 31, 2025 and 2024, we had approximately 12.2 million and 9.5 million paid subscribers, respectively, representing an increase of 28% 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.

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 booki

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