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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, 2022
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)
Delaware45-3055872
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
5900 Penn Avenue
Pittsburgh, Pennsylvania 15206
(412) 567-6602
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant’s Principal Executive Offices)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, $0.0001 per shareDUOL
 The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. 
Yes ☒ No ☐ 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐ 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes    No  ☒

As of November 9, 2022, 31,279,319 shares of the registrant's Class A common stock were outstanding, and 8,890,418 shares of the registrant's Class B common stock were outstanding.




Table of Contents
Page
1


Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including without limitation, statements regarding our business model and strategic plans and our implementation thereof; statements regarding our expectations, beliefs, plans, objectives, prospects, assumptions, future events or expected performance, including our ability to compete in our industry; the sufficiency of our cash, cash equivalents and investments; and the plans and objectives of management for future operations and capital expenditures are forward-looking statements.
Without limiting the generality of the foregoing, you can identify forward-looking statements because they contain words such as “may,” “will,” “shall,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” “goal,” “objective,” “seeks,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Such forward-looking statements are neither promises nor guarantees, but involve a number of known and unknown risks, uncertainties and assumptions that may cause our actual results, performance or achievements to differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to:
our ability to retain and grow our users and sustain their engagement with our products;
competition in the online language learning industry;
our limited operating history;
our ability to achieve profitability;
our ability to manage our growth and operate at such scale;
the success of our investments;
our reliance on third-party platforms to store and distribute our products and collect revenue;
our reliance on third-party hosting and cloud computing providers;
our ability to compete for advertisements;
acceptance by educational organizations of technology-based education; and
those identified in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q and in Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “Annual Report on Form 10-K”).
We caution you that the foregoing list does not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations, estimates, forecasts, and projections about future events and trends that we believe may
2


affect our business, results of operations, financial condition, and prospects. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur at all. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements. You should not place undue reliance on our forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this Quarterly Report on Form 10-Q by these cautionary statements.
Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to “Duolingo,” the “Company”, “we,” “our,” “us,” or similar terms refer to Duolingo, Inc. and its subsidiaries.
Special Note Regarding Key Operating Metrics
We manage our business by tracking several operating metrics, including monthly active users (MAUs), daily active users (DAUs), paid subscribers, and bookings. We believe each of these operating metrics provides useful information to investors and others. For information concerning these metrics as measured by us, see Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Key Operating Metrics and Non-GAAP Financial Measures.”
While these metrics are based on what we believe to be reasonable estimates of our user base for the applicable period of measurement, there are inherent challenges in measuring how our platform is used. These metrics are determined by using internal data gathered on an analytics platform that we developed and operate and have not been validated by an independent third party. This platform tracks user account and session activity. If we fail to maintain an effective analytics platform, our metrics calculations may be inaccurate.
We believe that these metrics are reasonable estimates of our user base for the applicable period of measurement, and that the methodologies we employ and update from time-to-time to create these metrics are reasonable bases to identify trends in user behavior. Because we update the methodologies we employ to create metrics, our operating metrics may not be comparable to those in prior periods. See the section titled “Risk Factors—Our user metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics may negatively affect our reputation
3


and our business”. Other companies, including companies in our industry, may calculate these metrics differently.
Risk Factors Summary
The following is a summary of the principal risks that could materially adversely affect our business, results of operations, and financial condition, all of which are more fully described in Part II, Item 1A. “Risk Factors.” This summary should be read in conjunction with Part II, Item 1A. “Risk Factors” and should not be relied upon as an exhaustive summary of the material risks facing our business.
If we fail to keep existing users or add new users, or if our users decrease their level of engagement with our products or do not convert to paying users, our revenue, financial results and business may be significantly harmed.
The online language learning industry is highly competitive, with low switching costs and a consistent stream of new products and entrants and innovation by our competitors may disrupt our business.
Changes to our existing brand and products, or the introduction of a new brand or products, could fail to attract or keep users or generate revenue and profits.
We have a limited operating history and, as a result, our past results may not be indicative of future operating performance.
Our costs are continuing to grow, and some of our investments have the effect of reducing our operating margin and profitability. If our investments are not successful, our business and financial performance could be harmed.
Our quarterly and annual operating results and other operating metrics may fluctuate from period to period, which makes these metrics difficult to predict.
Our operating metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics may negatively affect our reputation and our business.
We rely on third-party platforms such as the Apple App Store and the Google Play Store to distribute our products and collect payments. If we are unable to maintain a good relationship with such platform providers, if their terms and conditions or pricing changed to our detriment, if we violate, or if a platform provider believes that we have violated, the terms and conditions of its platform, or if any of these platforms loses market share or falls out of favor or is unavailable for a prolonged period of time, our business will suffer.
We rely on third-party hosting and cloud computing providers, like Amazon Web Services (“AWS”) and Google Cloud, to operate certain aspects of our business. A significant portion of our product traffic is hosted by a limited number of vendors, and any failure, disruption or significant interruption in our network or hosting and cloud services could adversely impact our operations and harm our business.
Our business is subject to complex and evolving US and international laws and regulations. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.
Our success depends, in part, on our ability to access, collect, and use personal data about our users and payers, and to comply with applicable data privacy laws.
The varying and rapidly-evolving regulatory framework on privacy and data protection across jurisdictions could result in claims, changes to our business practices, monetary penalties,
4


increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.
From time to time, we may be party to intellectual property-related litigation and proceedings that are expensive and time consuming to defend, and, if resolved adversely, could materially adversely impact our business, financial condition and results of operations.
We may fail to adequately obtain, protect and maintain our intellectual property rights or prevent third parties from making unauthorized use of such rights.
The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who held our capital stock prior to the listing of our Class A common stock on the Nasdaq Global Select Market, including our directors, executive officers, and 5% stockholders and their respective affiliates, who held in the aggregate 82.1% of the voting power of our outstanding capital stock as of September 30, 2022. This ownership will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval.
5


Part I Financial Information
Item 1. Financial Statements (Unaudited)

DUOLINGO, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except par value amounts)
September 30,
2022
December 31,
2021
ASSETS
Current assets
Cash and cash equivalents$599,967 $553,922 
Accounts receivable30,197 33,163 
Deferred cost of revenues30,258 24,219 
Prepaid expenses and other current assets7,909 7,967 
Total current assets668,331 619,271 
Property and equipment, net13,191 8,211 
Capitalized software, net7,018 4,566 
Operating lease right-of-use assets23,150 28,369 
Deferred tax assets418  
Other assets1,591 894 
Total assets$713,699 $661,311 
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable$3,363 $7,818 
Deferred revenues134,944 98,267 
Income tax payable145 113 
Accrued expenses and other current liabilities17,178 12,933 
Total current liabilities155,630 119,131 
Long-term obligation under operating leases24,243 29,124 
Total liabilities179,873 148,255 
Commitments and contingencies (Note 8)
Stockholders’ equity
Common stock, $0.0001 par value; 2,000,000 shares of Class A common stock authorized and 31,176 issued and outstanding at September 30, 2022; 30,000 shares of Class B common stock authorized and 8,910 issued and outstanding at September 30, 2022; 2,000,000 shares of Class A common stock authorized and 16,645 issued and outstanding at December 31, 2021; 30,000 shares of Class B common stock authorized and 21,627 issued and outstanding at December 31, 2021
4 4 
Additional paid-in capital750,380 683,966 
Accumulated deficit(216,558)(170,914)
Total stockholders’ equity533,826 513,056 
Total liabilities, convertible preferred stock and stockholders' equity$713,699 $661,311 
See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.
6


DUOLINGO, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Amounts in thousands, except per share amounts)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenues$96,065 $63,595 $265,671 $177,758 
Cost of revenues26,302 18,078 71,661 49,234 
Gross profit69,763 45,517 194,010 128,524 
Operating expenses:
Research and development41,976 29,345 105,974 73,814 
Sales and marketing17,721 15,267 47,938 44,659 
General and administrative30,228 29,605 87,141 52,643 
Total operating expenses89,925 74,217 241,053 171,116 
Loss from operations(20,162)(28,700)(47,043)(42,592)
Other income (expense), net1,770 (219)1,621 43 
Loss before provision for income taxes(18,392)(28,919)(45,422)(42,549)
Provision for income taxes53 51 222 69 
Net loss and comprehensive loss$(18,445)$(28,970)$(45,644)$(42,618)
Net loss per share attributable to Class A and Class B common stockholders, basic$(0.46)$(0.98)$(1.16)$(2.29)
Net loss per share attributable to Class A and Class B common stockholders, diluted$(0.46)$(0.98)$(1.16)$(2.29)
See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.
7


DUOLINGO, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(Amounts in thousands)
Convertible Preferred StockCommon
Stock
SharesAmountSharesAmountAdditional
Paid-In
Capital
Accumulated
Deficit
Total
BALANCE—July 1, 202119,074 $182,609 13,271 $1 $30,649 $(124,427)$(93,777)
Issuance of common stock in connection with the initial public offering, net of underwriting discounts and issuance costs— — 4,466 1 426,191 — 426,192 
Conversion of redeemable convertible preferred stock to common stock in connection with initial public offering(19,074)(182,609)19,074 2 182,607 — 182,609 
Stock-based compensation— — — — 20,662 — 20,662 
Stock options exercised— — 634 — 4,015 — 4,015 
Net loss— — — — — (28,970)(28,970)
BALANCE—September 30, 2021 $ 37,445 $4 $664,124 $(153,397)$510,731 
BALANCE—July 1, 2022 $ 39,587 $4 $726,328 $(198,113)$528,219 
Stock-based compensation— — — — 20,488 — 20,488 
Stock options exercised— — 379 — 3,564 — 3,564 
Release of restricted stock units— — 120 — — —  
Net loss— — — — — (18,445)(18,445)
BALANCE—September 30, 2022 $ 40,086 $4 $750,380 $(216,558)$533,826 
See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.



8


DUOLINGO, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS’ EQUITY
NINE MONTHS ENDED September 30, 2022 AND 2021
(Amounts in thousands)

Convertible Preferred StockCommon Stock
SharesAmountSharesAmountAdditional
Paid-In
Capital
Accumulated
Deficit
Total
BALANCE—January 1, 202119,074 $182,609 12,794 $1 $30,087 $(110,779)$(80,691)
Issuance of common stock in connection with the initial public offering, net of underwriting discounts and issuance costs4,466 $1 $426,191 $426,192 
Conversion of redeemable convertible preferred stock to common stock in connection with initial public offering(19,074)(182,609)19,074 2 182,607 — 182,609 
Stock-based compensation— — — — 26,120 — 26,120 
Stock options exercised— — 1,134 — 7,322 — 7,322 
Common stock repurchased and retired— — (23)— (868)— (868)
Options repurchased— — — — (7,335)— (7,335)
Net loss— — — — — (42,618)(42,618)
BALANCE—September 30, 2021 $ 37,445 $4 $664,124 $(153,397)$510,731 
BALANCE—January 1, 2022 $ 38,272 $4 $683,966 $(170,914)$513,056 
Stock-based compensation— — — — 53,188 — 53,188 
Stock options exercised— — 1,585 — 13,226 — 13,226 
Release of restricted stock units— — 229 — — —  
Net loss— — — — — (45,644)(45,644)
BALANCE—September 30, 2022 $ 40,086 $4 $750,380 $(216,558)$533,826 
See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.

9


DUOLINGO, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)
Nine Months Ended September 30,
20222021
Cash flows from operating activities:
Net loss$(45,644)$(42,618)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization3,426 1,969 
Stock-based compensation53,188 26,120 
Changes in assets and liabilities:
Deferred revenue36,677 25,668 
Accounts receivable2,966 (287)
Deferred cost of revenues(6,039)(6,141)
Prepaid expenses and other current assets(2,154)(2,559)
Accounts payable(3,864)6,512 
Accrued expenses and other current liabilities4,269 409 
Noncurrent assets and liabilities(777)(335)
Net cash provided by operating activities42,048 8,738 
Cash flows from investing activities:
Capitalized software(3,959)(2,035)
Purchase of property and equipment(5,270)(3,063)
Net cash used for investing activities(9,229)(5,098)
Cash flows from financing activities:
Issuance of common stock in connection with the initial public offering, net of underwriting discounts and issuance costs 426,191 
Proceeds from exercise of stock options13,226 7,322 
Repurchases of stock options (7,335)
Repurchase of common stock (868)
Net cash provided by financing activities13,226 425,310 
Net increase in cash and cash equivalents46,045 428,950 
Cash and cash equivalents - Beginning of period553,922 120,490 
Cash and cash equivalents - End of period$599,967 $549,440 
Supplemental disclosure of cash flow information:
Cash paid for interest$ $ 
Cash paid for income taxes$608 $94 
Supplemental disclosure of noncash operating activities:
Implementation costs for cloud computing included in Current liabilities$ $27 
Supplemental disclosure of noncash investing activities:
Capitalized software included in Current liabilities$8 $337 
Property and equipment included in Current liabilities$45 $2 
Landlord incentives included in Prepaid expenses and other current assets$2,148 $ 
See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.
10


DUOLINGO, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.     DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Duolingo, Inc. (the “Company” or “Duolingo”) was formed on August 18, 2011 and the Duolingo app was launched to the general public on June 19, 2012. The Company’s headquarters are located in Pittsburgh, Pennsylvania.
On July 30, 2021, Duolingo completed its Initial Public Offering (“IPO”) of 5,872 shares of its Class A common stock at a price to the public of $102.00 per share, 4,466 of which were sold by the Company and 1,406 of which were sold by certain selling stockholders, which includes the exercise in full by the underwriters of their option to purchase from the Company an additional 766 shares of the Company’s Class A common stock. The gross proceeds to the Company from the IPO were $455,532, before deducting underwriting discounts and commissions and offering expenses payable by the Company. The Company did not receive any proceeds from the sale of shares of Class A common stock in the offering by the selling stockholders.
Duolingo is a US-based language-learning website and mobile app, as well as a digital language proficiency assessment exam. The Company has a freemium business model: the app and the website are accessible free of charge, although Duolingo also offers a premium service, Super Duolingo (formerly called Duolingo Plus), for a subscription fee. As of the date of this filing, Duolingo offers courses in over 40 different languages, including Spanish, English, French, German, Italian, Portuguese, Japanese and Chinese. We have locations in the United States, China and Germany.
Principles of Consolidation—The Unaudited Condensed Consolidated Financial Statements include the accounts of the Company and subsidiaries over which the Company has control. All intercompany transactions and balances have been eliminated.
Basis of Presentation—The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) from the Company’s accounting records and reflect the consolidated financial position and results of operations for the three and nine months ended September 30, 2022 and 2021. Unless otherwise specified, all dollar amounts are referred to in thousands.
The Unaudited Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such SEC rules. We believe that the disclosures made are adequate to make the information presented not misleading. In our opinion, all adjustments considered necessary for a fair presentation of the financial statements have been included, and all adjustments are of a normal and recurring nature. We consistently applied the accounting policies consistent with the annual consolidated financial statements elsewhere in this Quarterly Report on Form 10-Q, in preparing these Unaudited Condensed Consolidated Financial Statements. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited financial statements and the notes for the fiscal year ended December 31, 2021 included in the Annual report on Form 10-K and filed with the SEC.
2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Under the JOBS Act, emerging growth companies also can delay adopting new or revised accounting standards until such time as those standards would otherwise apply to private companies. While we have
11


not historically delayed the adoption of new or revised accounting standards until such time as those standards would apply to private companies, we have elected to take advantage of this extended transition period and, as a result, our operating results and financial statements in the future may not be comparable to the operating results and financial statements of companies who have adopted the new or revised accounting standards.
Accounting Principles—The Unaudited Condensed Consolidated Financial Statements and accompanying notes are prepared in accordance with GAAP.
Use of Estimates—The preparation of Unaudited Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Unaudited Condensed Consolidated Financial Statements and accompanying notes. Significant estimates and assumptions reflected in the Unaudited Condensed Consolidated Financial Statements include, but are not limited to, useful lives of property and equipment, valuation of deferred tax assets and liabilities, stock-based compensation, common stock valuation, operating lease right-of-use assets and liabilities, capitalization of internally developed software and associated useful lives and contingent liabilities. Actual results may differ materially from such estimates. Management believes that the estimates, and judgments upon which they rely, are reasonable based upon information available to them at the time that these estimates and judgments are made. To the extent that there are material differences between these estimates and actual results, the Company’s Unaudited Condensed Consolidated Financial Statements will be affected.
Cash and Cash Equivalents—Cash consists primarily of cash on hand and bank deposits. Cash equivalents consist primarily of money market accounts with maturities of three months or less at the date of acquisition and are stated at cost, which approximates fair value. The Company maintains cash deposits with financial institutions that may exceed federally insured limits at times. The following table shows the breakout between cash and money market funds.
September 30,
2022
December 31,
2021
Cash$87,248 $44,165 
Money market funds512,719 509,757 
Total$599,967 $553,922 
The Money market funds are considered Level 1 financial assets. Level 1 financial assets use inputs that are the unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Advertising Costs— Advertising costs were approximately $12,807 and $12,013 for the three months ended September 30, 2022 and 2021, respectively, and $34,354 and $31,764 for the nine months ended September 30, 2022 and 2021, respectively, and are included within Sales and marketing in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss.
Income Taxes—The Company’s provision for income taxes is computed by using an estimate of the annual effective tax rate, adjusted for discrete items taken into account in the relevant period, if any. Each quarter, the annual effective income tax rate is recomputed and if there are material changes in the estimate, a cumulative adjustment is made.
Concentration of Credit Risk—The Company’s concentration of credit risk relates to financial institutions holding the Company’s cash and cash equivalents and platforms with significant accounts receivable balances and revenue transactions.
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The Company maintains cash deposits with financial institutions that may exceed federally insured limits at times. Management believes that the financial institutions that hold the Company’s deposits are financially credit worthy and, accordingly, minimal credit risk exists with respect to those balances.
The majority of our revenue comes through our subscriptions and advertising streams and payments are made to Duolingo through service providers. The top two, Apple and Google, accounted for 54.6% and 26.6% of total Accounts receivable as of September 30, 2022, respectively. The top three service providers, Apple, Google and Stripe, accounted for 51.1%, 27.9% and 10.1% of total Accounts receivable as of December 31, 2021, respectively.
Two service providers, Apple and Google, processed 55.2% and 27.7%, and 53.4% and 28.4% of total Revenues for the three and nine months ended September 30, 2022, respectively. Three services providers, Apple, Google, and Stripe, processed 51.6%, 29.3% and 12.1%, and 51.2%, 29.0% and 11.0% of total Revenues for the three and nine months ended September 30, 2021, respectively.
Impairment of long-lived assets— The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the estimated undiscounted future cash flows expected to result from the use and eventual disposition of an asset is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of an impairment loss is based on the fair value of the asset. No assets were impaired during the three and nine months ended September 30, 2022 and 2021.
Recently Issued Pronouncements Not Yet Adopted
There are no recently issued accounting pronouncements that the Company has not yet adopted that they believe are applicable or would have a material impact on the financial statements of the Company.
3.      REVENUE
The Company has three predominant sources of revenues; time-based subscriptions, in-app advertising placement by third parties, and the Duolingo English Test. Revenue is recognized upon transfer of control of promised products or services to users in an amount that reflects the consideration the Company expects to receive in exchange for those services. The Company does not enter into contracts with a customer that contain multiple promises that result in multiple performance obligations. Revenue is recorded net of taxes assessed by a government authority that are both imposed on and concurrent with specific revenue transactions between us and our users.
Revenue from time-based subscriptions includes a stand-ready obligation to provide hosting services that are consumed by the customer over the subscription period. Users can purchase Duolingo monthly or they can purchase a six-month or year-long subscription and pay for the subscription at the time of purchase. Under the year-long subscription, users can also purchase a single plan or a family plan. The family plan includes up to six users on one subscription. Such payments are initially recorded to deferred revenue. The user has the ability to download limited content offline. However, as there is a significant level of integration and interdependency with the online functionality, the Company considers the service to be a single performance obligation for the online and offline content.
The Company enters into arrangements with advertising networks to monetize the in-app advertising inventory. Revenue from in-app advertising placement is recognized at a point in time when the advertisement is placed and is based upon the amount received.
Duolingo English Test revenue is generally recognized once the tests have gone through the proctoring process and a certification decision has been made. This process usually takes less than 48 hours after the test has been completed and uploaded. Customers have 21 days from the date of purchase to take
13


the exam or their purchase will expire and revenue will be recognized. Virtually all customers complete their exams prior to expiration. Sometimes organizations may purchase tests in bulk via coupons with a one year expiration date. The Company will defer revenue from all tests that haven’t been proctored nor expired.
The Company’s users have the option to purchase consumable in-app virtual goods. The Company recognizes revenue over the period in which the user consumes the virtual good, which is generally within a month.
Principal Agent Considerations—The Company makes its application available to be downloaded through third-party digital distribution service providers. Users who purchase subscriptions also pay through the respective app stores. The Company evaluates the purchases via third-party payment processors to determine whether its revenues should be reported gross or net of fees retained by the payment processor. The Company is the principal in the transaction with the end user as a result of controlling, hosting, and integrating the delivery of the virtual items to the end user. The Company records revenue gross as a principal and records fees paid to third-party payment processors as Cost of revenues.
Contract Balances—Deferred revenue mostly consists of payments we receive in advance of revenue recognition, and is mostly related to time-based subscriptions, which will be recognized into revenue over the course of the upcoming year (recognized over 12 months or less). Additionally, the Duolingo English Test has deferred revenue related to tests that have been purchased, but will not be recognized until the tests have been proctored.
Disaggregation of Revenue
In accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, the Company disaggregates revenue from contracts with customers into source of revenue, which most closely depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Information regarding source of revenues:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Over time$72,172 $46,030 $195,376 $129,587 
Point in time23,893 17,565 70,295 48,171 
Total revenue$96,065 $63,595 $265,671 $177,758 
Information regarding revenue by stream:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenues:
Subscription$72,172 $46,030 $195,376 $129,587 
Advertising10,619 9,029 33,585 27,360 
Duolingo English Test8,192 6,695 24,308 16,563 
Other (1)5,082 1,841 12,402 4,248 
Total revenues$96,065 $63,595 $265,671 $177,758 
14


________________
(1) Other revenue is mainly comprised of in-app purchases of virtual goods.
Changes in deferred revenues were as follows:
Nine Months Ended September 30,
20222021
Beginning balance—January 1$98,267 $54,792 
Amount from beginning balance recognized into revenue(89,387)(51,254)
Recognition of deferred revenue(122,527)(83,088)
Deferral of revenue248,591 160,010 
Ending balance—September 30$134,944 $80,460 
4.    PROPERTY and EQUIPMENT, net
Property and equipment consists of the following as of September 30, 2022 and December 31, 2021:
September 30,
2022
December 31, 2021
Leasehold improvements$15,602 $10,258 
Furniture, fixtures and equipment4,942 3,053 
Total property and equipment20,544 13,311 
Less: accumulated depreciation(7,353)(5,100)
Total property and equipment, net$13,191 $8,211 
Depreciation expense of $1,000 and $2,253 for the three and nine months ended September 30, 2022, respectively, and $545 and $1,485, for the three and nine months ended September 30, 2021, respectively is recorded in the Company’s Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss. Depreciation expense is included within the following financial statement line items within the Company’s Unaudited Condensed Consolidated Financial Statements.
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2022202120222021
Research and development$627 $99 $1,224 $133 
Sales and marketing78 13 156 17 
General and administrative295 433 873 1,335 
Total$1,000 $545 $2,253 $1,485 

5.    CAPITALIZED SOFTWARE, net
Capitalized software consists of the following as of September 30, 2022 and December 31, 2021:
September 30,
2022
December 31, 2021
Capitalized software$14,769 $11,144 
Less: accumulated amortization(7,751)(6,578)
Capitalized software, net$7,018 $4,566 
Amortization expense of $482 and $1,173 for the three and nine months ended September 30, 2022, respectively, and $188 and $484 for the three and nine months ended September 30, 2021, respectively, is recorded in the Company’s Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss. Amortization expense is included within the following financial statement line items within the Company’s Unaudited Condensed Consolidated Financial Statements.
15


Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2022202120222021
Cost of revenues$274 $ $547 $ 
Sales and marketing
208 188 626 484 
Total
$482 $188 $1,173 $484 
6.    INCOME TAXES
The income tax provision for interim periods is comprised of tax on ordinary income (loss) provided at the most recent projected annual effective tax rate (“PAETR”), adjusted for the tax effect of discrete items. Management estimates the PAETR each quarter based on the forecasted annual pretax income or (loss). The Company is required to reduce deferred tax assets by a valuation allowance if, based on all available evidence, it is considered more likely than not that some portion or all of the benefit of the deferred tax assets will not be realized in future periods. The Company also records the income tax impact of certain discrete, unusual or infrequently occurring items including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur.
The actual year-to-date income tax expense is the product of the most current PAETR and the actual year-to-date pretax income (loss) adjusted for any discrete tax items. Items unrelated to current period ordinary income or (loss) are recognized entirely in the period identified as a discrete item of tax. The income tax expense for a particular quarter, except for the first quarter, is the difference between the year-to-date calculation of income tax expense and the year-to-date calculation for the prior quarter. Items unrelated to current period ordinary income or (loss) are recognized entirely in the period identified as a discrete item of tax. The inclusion of discrete items in a particular quarter can cause the actual effective rate for that quarter to vary significantly from the PAETR.
Therefore, the actual effective income tax rate for a particular quarter can vary significantly based upon the jurisdictional mix and timing of actual earnings compared to projected annual earnings, permanent items, earnings for those jurisdictions that maintain a valuation allowance, tax associated with jurisdictions excluded from the PAETR calculation and discrete items.
Effective Tax Rate
The effective income tax rate was (0.3)% and (0.2)% for the three months ended September 30, 2022 and 2021, respectively. The effective income tax rate for the nine months ended September 30, 2022 and 2021 was (0.5)% and (0.2)%, respectively. The year over year changes in the rate are primarily due to the impact of a discrete tax expense recorded in the second quarter. The effective income tax rate was lower than the US federal statutory rate of 21.0% primarily due to the impact of maintaining a US valuation allowance provided on US deferred tax assets.
The Company continues to maintain a full valuation allowance on US federal and state net deferred tax assets for the period ending September 30, 2022 as a result of pre-tax losses incurred since the Company’s inception in early 2012. The Company is projecting pre-tax loss in 2022. In the second quarter, the Company established a deferred tax asset of $418 with respect to its China subsidiary. The Company has evaluated the realizability of this deferred tax asset and as it is expected, on a more-likely-than-not basis, to be fully realized, no valuation allowance was recorded against it.
Current and Prior Period Tax Expense
For the three months ended September 30, 2022 and 2021, the Company recognized income tax expense of $53 and $51 on pretax losses of $18,392 and $28,919, respectively. For the nine months ended September 30, 2022 and 2021, the Company recognized income tax expense of $222 and $69 on pretax losses of $45,422 and $42,549, respectively.
16


7.    STOCK-BASED COMPENSATION
Prior to the IPO, the Company granted options to purchase shares of the Company’s common stock and restricted stock units (“RSU”) in respect of shares of the Company’s common stock to employees, directors and consultants under the Company’s 2011 Equity Incentive Plan. In July 2021, Duolingo adopted the 2021 Incentive Award Plan (“2021 Plan”) and the 2021 Employee Stock Purchase Plan (“ESPP”), each of which became effective on July 26, 2021 in connection with the IPO. An aggregate of 7,946 shares and 1,119 shares of Class A common stock were made available for future issuance under the 2021 Plan and ESPP, respectively. On each January 1, the number of shares of the Company’s Class A common stock available for issuance under the 2021 Plan have been, and through January 1, 2031, will be, increased by the lesser of (i) 5% of the shares outstanding on the preceding December 31 (calculated on an as-converted basis) and (B) such smaller number of shares of common stock as determined by the Board or the Committee (as defined in the 2021 Plan). On January 1, 2022, the 2021 Plan and ESPP were increased by 1,913 shares and 166 shares, respectively.
The Company’s stock options vest based on terms in the stock option agreements, which generally provide for vesting over four years based on continued service to the Company and its subsidiaries. Each option has a term of ten years. Stock options granted under the 2021 Plan must generally have an exercise price of not less than the estimated fair market value of the underlying Class A common stock at the date of the grant. No options have been granted under the 2021 Plan.
A summary of stock option and RSU activity under the Plans was as follows:
Number of
options
Weighted-
average
exercise
price
Weighted- average remaining contractual life (years)Aggregate intrinsic value
Options outstanding at January 1, 20226,255 $12.53 6.92$585,339 
Granted  
Exercised(1,585)8.34 
Repurchased  
Forfeited and expired(95)16.82 
Options outstanding at September 30, 2022
4,575 $13.89 6.49$372,206 
Options exercisable at September 30, 20223,671 $12.78 6.22$302,468 
The total intrinsic value of options exercised was approximately $129,725 and $102,628 for the period ended September 30, 2022 and 2021, respectively. 
17



Restricted stock unitsWeighted-
average
grant date fair value per share
Outstanding at January 1, 2022
730 $77.09 
Granted1,415 92.10 
Released(229)78.44 
Forfeited(62)80.08 
Outstanding at September 30, 2022
1,854 $88.28 
As of September 30, 2022, there was approximately $6,955 of unrecognized compensation cost related to stock options granted under the plans with a weighted-average period of approximately two years. The amount of unrecognized compensation expense for RSUs as of September 30, 2022 was $154,113 with a weighted-average period of approximately three years, for a total unrecognized compensation expense of $161,068.
There were 8,409 shares available for grant at September 30, 2022.
Performance-based RSUs
In June 2021, the Company granted an aggregate of 1,800 performance-based RSUs (the “Founder Awards”) to the Company’s founders. The Founder Awards vest upon the satisfaction of both a service-based condition and a performance-based condition and generally are settled 1 year after vesting. The service-based condition is satisfied as to 25% of the Founder Awards on each anniversary of the completion of the IPO, subject to the continuous service of the founders through the applicable date. The performance-based condition will be satisfied with respect to each of 10 equal tranches only if the trailing 60-calendar day volume-weighted-average closing trading price of the Company’s Class A common stock reaches certain stock-price hurdles for each such tranche, as set forth below, over a period of 10 years from the date of grant.
Any RSUs associated with stock-prices hurdle not achieved by the tenth anniversary of the date of grant will terminate and be canceled for no additional consideration to the founders. The stock-price hurdles and number of RSUs eligible to vest will be adjusted to reflect any stock splits, stock dividends, combinations, reorganizations, reclassifications, or similar events under the 2021 Plan. The Founder Awards will be settled in shares of the Company’s Class B common stock.
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TrancheCompany Stock Price HurdleNumber of RSUs Eligible to Vest
1$127.50 90 
2$153.00 90 
3$178.50 90 
4$204.00 180 
5$255.00 180 
6$306.00 180 
7$357.00 180 
8$408.00 180 
9$612.00 270 
10$816.00 360 
The Company estimated the grant date fair value of the Founder Awards using a model based on multiple stock-price paths developed through the use of a Monte Carlo simulation that incorporates into the valuation the possibility that the stock-price hurdles may not be satisfied. The weighted-average grant date fair value of the Founder Awards was estimated to be $61.56 per share and the Company estimates that it will recognize total stock-based compensation expense of approximately $110,817 over the derived service period of each of the ten separate tranches which is between 3.585.92 years. If the stock-price hurdles are met sooner than the requisite service period, the stock-based compensation expense will be adjusted to prospectively recognize the remaining expense over the remaining derived service period. Provided that the founders continue to provide services to the Company, stock-based compensation expense is recognized over the derived service period, regardless of whether the stock-price hurdles are achieved. The stock-price hurdles for the first two tranches were met during 2021. No additional stock-price hurdles were met during the nine months ended September 30, 2022. The Company recognized $7,572 and $23,699 of stock-based compensation expense related to these awards for the three and nine months ended September 30, 2022, respectively, which is included within General and administrative in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss. As of September 30, 2022, there is $70,656 of unrecognized compensation expense related to these awards.
Total stock-based compensation expense was $20,488 and $53,188 for the three and nine months ended September 30, 2022, respectively, and $20,662 and $26,120 for the three and nine months ended September 30, 2021, respectively.
Stock based compensation expense is included in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss as shown in the following table:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Cost of revenues$11 $6 $27 $8 
Research and development8,030 3,533 17,435 5,749 
Sales and marketing786 408 1,729 548 
General and administrative11,661 16,715 33,997 19,815 
Total$20,488 $20,662 $53,188 $26,120 
Nominal amounts of stock based compensation expense is capitalized into capitalized software for the three and nine months ended September 30, 2022 and 2021.
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8.    COMMITMENTS AND CONTINGENCIES
Legal Proceedings— From time to time, the Company may become involved in various legal proceedings in the ordinary course of its business and may be subject to third-party infringement claims. The outcome of any such claims or proceedings, regardless of the merits, is inherently uncertain. The Company is not currently party to any material legal proceedings
Sales and use and value-added tax (“VAT”)— The Company determined that it was required to pay sales and use and VAT taxes in various jurisdictions. The Company is in the process of filing voluntary disclosure agreements with certain jurisdictions and remitting the estimated taxes. If these jurisdictions determine that additional amounts are necessary, the Company will be required to pay accordingly.
Related Parties— The Company has determined that there were no transactions with related parties as of or during the three and nine months ended September 30, 2022 and 2021.
9.    ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
September 30,
2022
December 31, 2021
Obligations under current leases$4,636 $3,336 
Employee-related costs3,699 2,075 
Sales and VAT tax accrual2,159 2,319 
Marketing related accruals918 1,078 
Other5,766 4,125 
Total$17,178 $12,933 
10.    EMPLOYEE BENEFIT PLAN
The Company sponsors a profit sharing plan with a 401(k) feature, the Duolingo Retirement Plan, (the “Plan”) for eligible employees. The current Plan, effective January 1, 2021, provides for Company safe harbor matching contributions of 100% of the first 4% of the employees’ elective deferrals and 50% of the next 2%, with vesting starting upon the first day of employment. The Company also has the option to make discretionary matching or profit sharing contributions. The Company made safe harbor matching contributions of approximately $1,097 and $3,139 for the three and nine months ended September 30, 2022, respectively, and $877 and $2,360 for the three and nine months ended September 30, 2021, respectively. The Company did not make any discretionary matching or profit sharing contributions during the three and nine months ended September 30, 2022 or 2021.
11.    LOSS PER SHARE
Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. Prior to the automatic conversion of all of its convertible preferred stock outstanding into Class B common stock upon the IPO, the Company considered all series of its convertible preferred stock to be participating securities.
Under the two-class method, the net loss attributable to common stockholders is not allocated to the convertible preferred stock as the holders of the convertible preferred stock do not have a contractual obligation to share in the Company’s losses. Basic net loss per share attributable to common stockholders is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase. The diluted net loss per share
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attributable to common stockholders is calculated by giving effect to all potential dilutive common stock equivalents outstanding for the period.
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands, except per share data)2022202120222021
Numerator:
Net loss attributable to Class A and Class B common shareholders$(18,445)$(28,970)$(45,644)$(42,618)
Denominator:
Weighted-average shares in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted39,753 29,531 39,210 18,600 
Basic loss per common share$(0.46)$(0.98)$(1.16)$(2.29)
Diluted loss per common share$(0.46)$(0.98)$(1.16)$(2.29)
The rights, including the liquidation and dividend rights, of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to 20 votes per share. Each share of Class B common stock is convertible into a share of Class A common stock voluntarily at any time by the holder, and automatically upon certain events. The Class A common stock has no conversion rights. As the liquidation and dividend rights are identical for Class A and Class B common stock, the undistributed earnings are allocated on a proportional basis and the resulting net loss per share attributable to common stockholders will, therefore, be the same for both Class A and Class B common stock on an individual or combined basis.
Since the Company was in a net loss position for the three and nine months ended September 30, 2022 and 2021, there is no difference between the number of shares used to calculate basic and diluted loss per share. The potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders for the period presented because including them would have been antidilutive are as follows:
Three and Nine Months Ended September 30,
(in thousands)20222021
Founder awards where performance has been met180 90 
Stock options3,671 4,830 
Vested, not released, RSUs3  
Total3,854 4,920 
Founder awards of 1,620, where the performance criteria has not been satisfied, are excluded from the above table because the stock-price hurdles for those awards had not been met as of September 30, 2022.

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12.    SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the filing of this Form 10-Q, and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements except for the following:
On October 3, 2022, the Company completed the acquisition of the assets of Gunner Made LLC (“Gunner”), a wholly owned entity of PNG Holdings LLC, a design and animation studio based in Detroit, Michigan. The acquisition of Gunner added fifteen new designers, illustrators, and animators to Duolingo’s existing design teams. The total consideration was $4.5 million, of which $4 million was paid in cash upon closing and $0.5 million will be paid after one year of continued service of certain Gunner employees. The Company is currently in the process of completing the preliminary purchase price allocation, which will be included in the Company’s Annual Report on Form 10-K for the year ending December 31, 2022.
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 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 56 million monthly active users as of September 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
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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 September 30,
(Operating metrics are in millions)20222021
Operating Metrics
Monthly active users (MAUs)56.5 41.7 
Daily active users (DAUs)14.9 9.8 
Paid subscribers (at period end)3.7 2.2 
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Operating Metrics
Subscription bookings$78,858 $55,362 $231,520 $154,768 
Total bookings$102,738 $73,058 $302,259 $203,426 
Non-GAAP Financial Measures
Net loss (GAAP)$(18,445)$(28,970)$(45,644)$(42,618)
Adjusted EBITDA$2,130 $(5,968)$10,274 $(1,395)
Net cash provided by operating activities (GAAP)$8,759 $4,511 $42,048 $8,738 
Free cash flow$6,055 $5,184 $34,863 $11,113 
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 56.5 million and 41.7 million MAUs for the three months ended September 30, 2022 and 2021, respectively, representing an increase of 35% from the prior year period. We grew MAUs through product initiatives designed to make the app more social and engaging and through marketing, both of which we believe 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 14.9 million and 9.8 million DAUs for the three months ended September 30, 2022 and 2021, respectively, representing an increase of 51% from the prior year period. The DAU / MAU ratio, which we believe is an indicator of user engagement, increased to 26.3% from 23.5% a year ago. We
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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 September 30, 2022 and 2021, we had approximately 3.7 million and 2.2 million paid subscribers, respectively, representing an increase of 68% from the prior year period. We grew paid subscribers through product improvements and marketing that increased the size of our free user base, through product improvements, including premium features and better in-app merchandising like purchase page optimization, packaging and pricing that led to higher conversion of free users to paid subscribers, and steady subscriber retention.
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 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 September 30, 2022 and 2021 we generated $78.9 million and $55.4 million of subscription bookings, respectively, representing an increase of 42% from the prior year period. For the nine months ended September 30, 2022 and 2021, we generated $231.5 million and $154.8 million of subscription bookings, respectively, representing an increase of 50% from the prior year period. We grew subscription bookings by selling more first-time and renewal subscriptions. Subscription bookings grow when we convert a greater proportion of users to first-time subscribers, and increase renewal rates.
For the three months ended September 30, 2022 and 2021 we generated $102.7 million and $73.1 million, of total bookings, respectively, representing an increase of 41% from the prior year period. For the nine months ended September 30, 2022 and 2021, we generated $302.3 million and $203.4 million total bookings, respectively, representing an increase of 49% 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
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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, stock-based compensation expenses related to equity awards, IPO and public company costs, transaction costs related to an acquisition, 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 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 September 30,Nine Months Ended September 30,
(In thousands)
2022202120222021
Net loss$(18,445)$(28,970)