# Duolingo, Inc.: Form 10-Q for the period ended Sep 30, 2025

- Company: [Duolingo, Inc.](/companies/duol.md) (CIK 1562088)
- Form: 10-Q
- Filed: 2025-11-06
- Accepted by EDGAR: Nov 5, 2025, 23:27 ET
- Period: 2025-09-30
- Accession: 0001628280-25-049743
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1562088/000162828025049743/duol-20250930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1562088/000162828025049743/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2025-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2025-07-01 to 2025-09-30 | $271.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2025-01-01 to 2025-09-30 | $754.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2025-07-01 to 2025-09-30 | $74.8m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2025-01-01 to 2025-09-30 | $211.1m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2025-07-01 to 2025-09-30 | $196.9m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2025-01-01 to 2025-09-30 | $543.6m | us-gaap:GrossProfit |
| Research and development | 3 months, 2025-07-01 to 2025-09-30 | $82.7m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2025-01-01 to 2025-09-30 | $226.8m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2025-07-01 to 2025-09-30 | $35.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2025-01-01 to 2025-09-30 | $92.1m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2025-07-01 to 2025-09-30 | −$245.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2025-01-01 to 2025-09-30 | −$244.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2025-07-01 to 2025-09-30 | $292.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2025-01-01 to 2025-09-30 | $372.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2025-07-01 to 2025-09-30 | $5.95 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2025-01-01 to 2025-09-30 | $7.63 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2025-07-01 to 2025-09-30 | $6.36 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2025-01-01 to 2025-09-30 | $8.17 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2025-07-01 to 2025-09-30 | 49,144,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2025-01-01 to 2025-09-30 | 48,766,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2025-01-01 to 2025-09-30 | $280.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2025-01-01 to 2025-09-30 | $7.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2025-09-30 | $1.01bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2025-09-30 | $1.37bn | us-gaap:AssetsCurrent |
| Total assets | at 2025-09-30 | $1.89bn | us-gaap:Assets |
| Current liabilities | at 2025-09-30 | $484.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2025-09-30 | $578.1m | us-gaap:Liabilities |
| Shareholders' equity | at 2025-09-30 | $1.31bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 46,720 characters.

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

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 135 million monthly active users for the three months ended September 30, 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.

### 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.

*(In millions)*

| Operating Metrics | Three Months Ended September 30, 2025 | 2024 |
| --- | ---: | ---: |
| Monthly active users (MAUs) | 135.3 | 113.1 |
| Daily active users (DAUs) | 50.5 | 37.2 |
| Paid subscribers (at period end) | 11.5 | 8.6 |

*(In thousands)*

| Operating Metrics | Three Months Ended September 30, 2025 | 2024 | Nine Months Ended September 30, 2025 | 2024 |
| --- | ---: | ---: | ---: | ---: |
| Subscription bookings | $240,270 | $176,309 | $699,713 | $494,259 |
| Total bookings | $281,919 | $211,456 | $821,587 | $599,000 |
| **Non-GAAP Financial Measures** |  |  |  |  |
| Net income (GAAP) (1) | $292,195 | $23,360 | $372,111 | $74,667 |
| Adjusted EBITDA | $80,046 | $47,508 | $221,530 | $139,630 |
| Net cash provided by operating activities (GAAP) | $84,239 | $56,267 | $280,545 | $202,169 |
| Free cash flow (2) | $77,356 | $51,244 | $266,692 | $183,469 |

(1) During the three months ended September 30, 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, net of a return-to-provision adjustment, in the period of $222.7 million.

(2) The prior period has been recast to conform to current period presentation.

### 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 September 30, 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 135.3 million and 113.1 million MAUs for the three months ended September 30, 2025 and 2024, respectively, representing an increase of 20% from the prior year period. We grew MAUs through product initiatives designed to make the app more social and engaging, through marketing, and through improving our courses, all of which we believe helped us attract new users, retain existing users, and reengage the millions of former users who return to our Duolingo App.

***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 September 30, 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 50.5 million and 37.2 million DAUs for the three months ended September 30, 2025 and 2024, respectively, representing an increase of 36% from the prior year period. The DAU / MAU ratio, which we believe is an indicator of user engagement, increased to 37.3% from 32.9% a year ago. We grew DAUs through many of the same marketing and product initiatives as we grew MAUs, such as making the product more fun and engaging.

***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 September 30, 2025 and 2024, we had approximately 11.5 million and 8.6 million paid subscribers, respectively, representing an increase of 34% from the prior year period. We grew paid subscribers through product initiatives designed to make Duolingo subscription offerings more appealing, which we believe helped us 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. 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 September 30, 2025 and 2024 we generated $240.3 million and $176.3 million of subscription bookings, respectively, representing an increase of 36%. For the nine months ended September 30, 2025 and 2024, we generated $699.7 million and $494.3 million of subscription bookings, respectively, representing an increase of 42%. We grew subscription bookings by selling more first-time and renewal subscriptions.

For the three months ended September 30, 2025 and 2024 we generated $281.9 million and $211.5 million of total bookings, respectively, representing an increase of 33% from the prior year period. For the nine months ended September 30, 2025 and 2024, we generated $821.6 million and $599.0 million total bookings, respectively, representing an increase of 37% from the prior year period. We grew total bookings primarily through growth in subscription bookings as noted above.

### 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, 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, transaction costs related to acquisitions and acquisition earn-out costs. Beginning in Q3 2025, we expanded our Adjusted EBITDA definition to include integration costs related to acquisitions. 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 income, the most directly comparable financial measure presented in accordance with GAAP, to Adjusted EBITDA.

*(In thousands)*

|  | Three Months Ended September 30, 2025 | 2024 | Nine Months Ended September 30, 2025 | 2024 |
| --- | ---: | ---: | ---: | ---: |
| Net income (1) | $292,195 | $23,360 | $372,111 | $74,667 |
| Add (deduct): |  |  |  |  |
| Interest income | (11,793) | (11,246) | (33,635) | (32,000) |
| (Benefit from) provision for income taxes | (245,746) | 2,029 | (244,202) | 5,287 |
| Depreciation and amortization | 3,553 | 2,876 | 10,583 | 7,193 |
| Stock-based compensation expenses related to equity awards (2) | 37,368 | 29,990 | 111,414 | 83,647 |
| Acquisition transaction and integration costs (3) | 4,204 | 399 | 4,794 | 736 |
| Acquisition earn-out costs (4) | 265 | 100 | 465 | 100 |
| Adjusted EBITDA | $80,046 | $47,508 | $221,530 | $139,630 |

(1) During the three months ended September 30, 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, net of a return-to-provision adjustment, in the period of $222.7 million.

(2) In addition to stock-based compensation expense of $35.6 million and $29.0 million for the three months ended September 30, 2025 and 2024, respectively, and $101.2 million and $80.7 million for the nine months ended September 30, 2025 and 2024, respectively, this includes costs incurred related to taxes paid on equity transactions as follows:

*(In thousands)*

|  | Three Months Ended September 30, 2025 | 2024 | Nine Months Ended September 30, 2025 | 2024 |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $981 | $577 | $3,745 | $1,489 |
| Sales and marketing | 53 | 31 | 210 | 84 |
| General and administrative | 769 | 423 | 6,284 | 1,384 |
| Total | $1,803 | $1,031 | $10,239 | $2,957 |

(3) Represents costs incurred related to acquisition transaction and integration costs, including legal and accounting fees, which are included within our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income as follows:

*(In thousands)*

| Transaction costs | Three Months Ended September 30, 2025 | 2024 | Nine Months Ended September 30, 2025 | 2024 |
| --- | ---: | ---: | ---: | ---: |
| General and administrative | $695 | 399 | 1,285 | 736 |
| Integration costs |  |  |  |  |
| Research and development | $2,798 | $— | $2,798 | $— |
| Sales and marketing | 133 | — | 133 | 0 |
| General and administrative | 578 | — | 578 | — |
| Total Integration | 3,509 | — | 3,509 | 0 |
| Total transaction and integration costs | $4,204 | $399 | $4,794 | $736 |

(4) Represents costs incurred related to the earn-out payments on acquisitions, which is included within General and administrative expense within our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income.

For the three months ended September 30, 2025 and 2024, we generated net income of $292.2 million and $23.4 million, respectively. For the nine months ended September 30, 2025 and 2024 we generated net income of $372.1 million and $74.7 million, respectively. Net income for 2025 included a one-time income-tax benefit, net of a return-to-provision adjustment reflecting refinements to our tax calculation methodology, in the three months ended September 30, 2025 of $222,688. The increase in net income, excluding the impact from the valuation allowance, as compared to the comparative periods was primarily due to our growth in revenue, offset by increased compensation, marketing, and acquisition related expenses.

For the three months ended September 30, 2025 and 2024, we generated Adjusted EBITDA of $80.0 million and $47.5 million, respectively. For the nine months ended September 30, 2025 and 2024, we generated Adjusted EBITDA of $221.5 million and $139.6 million, respectively. Adjusted EBITDA increased as compared to the comparative periods as a result of higher revenue, and was partially offset by an increase in operating expenses driven primarily by headcount growth.

***Free Cash Flow***. Free cash flow is defined as net cash provided by operating activities, less capitalized software development costs and purchases of property and equipment. Beginning in the first quarter of 2025, we have aligned our calculation of free cash flow to this definition, and prior periods in this Quarterly Report on Form 10-Q have been recast to conform to this presentation. We believe that free cash flow is a measure of liquidity that provides useful information to our management, investors and others in understanding and evaluating the strength of our liquidity and future ability to generate cash that can be used for strategic opportunities or investing in our business. Free cash flow has certain limitations in that it does not represent our residual cash flow for discretionary expenditures and our non-discretionary commitments. The following table presents a reconciliation of net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP, to free cash flow:

*(In thousands)*

|  | Three Months Ended September 30, 2025 | 2024 | Nine Months Ended September 30, 2025 | 2024 |
| --- | ---: | ---: | ---: | ---: |
| Net cash provided by operating activities | $84,239 | $56,267 | $280,545 | $202,169 |
| Less: Capitalized software development costs and purchases of intangible assets | (2,021) | (1,845) | (6,484) | (8,545) |
| Less: Purchases of property and equipment | (4,862) | (3,178) | (7,369) | (10,155) |
| Free cash flow (1) | $77,356 | $51,244 | $266,692 | $183,469 |

(1) The prior period has been recast to conform to current period presentation.

For the three months ended September 30, 2025 and 2024 we generated $84.2 million and $56.3 million of net cash provided by operating activities, respectively, which was mainly due to our generation of positive net income as discussed under the heading Adjusted EBITDA above. For the nine months ended September 30, 2025 and 2024, we generated $280.5 million and $202.2 million of net cash provided by operating activities, respectively. The increase as compared to the comparative prior periods was primarily due to higher net income adjusted for non-cash items and changes in working capital, including an increase in deferred revenue.

For the three months ended September 30, 2025 and 2024, we generated $77.4 million and $51.2 million of free cash flow, respectively. For the nine months ended September 30, 2025 and 2024, we generated $266.7 million and $183.5 million of free cash flow, respectively. The increases as compared to the comparative prior periods were primarily due to increases in cash from operations. For the three months ended September 30, 2025, increases in capitalized software development costs and purchases of intangible assets and property and equipment partially offset the increase in net cash provided by operating activities. For the nine months ended September 30, 2025, a decrease in capitalized software development costs and purchases of intangible assets and purchases of property and equipment also contributed to the increase in free cash flow.

**Constant Currency.** The effect of currency exchange rates on our business is an important factor in understanding period to period comparisons. We use non-GAAP percentage change in constant currency revenues and bookings, which exclude the impact of fluctuations in foreign currency exchange rates, for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe this information is useful to investors to facilitate comparisons and better identify trends in our business. The impact of changes in foreign currency may vary significantly from period to period, and such changes generally are outside of the control of our management. We calculate constant currency revenues by translating current period foreign currency revenues using prior-year exchange rates applied consistently over the full revenue recognition period. We calculate constant currency bookings by using current period foreign currency bookings and translating them to constant currency using prior year comparable period exchange rates. The constant currency percentage change for revenues and bookings is calculated by dividing the difference between the constant currency amount and the prior year comparable period amount by the prior year comparable period amount.

The following table provides the changes in bookings and revenues on a reported basis and constant currency basis:

*(in thousands)*

| Revenue | Three Months Ended September 30, 2025 | 2024 | % Change | Constant Currency Change % | Nine Months Ended September 30, 2025 | 2024 | % Change | Constant Currency Change % |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Subscription | $229,491 | $157,617 | 46% | 46% | $631,156 | $433,214 | 46% | 47% |
| Total revenues | $271,713 | $192,594 | 41% | 42% | $754,721 | $538,474 | 40% | 41% |
| **Bookings** |  |  |  |  |  |  |  |  |
| Subscription | $240,270 | $176,309 | 36% | 34% | $699,713 | $494,259 | 42% | 41% |
| Total Bookings | $281,919 | $211,456 | 33% | 31% | $821,587 | $599,000 | 37% | 37% |

### Components of Our Results of Operations

### Revenue

We generate revenues primarily from the sale of subscriptions. The term-length of our subscription agreements are primarily monthly or annual, with the family plan offered as an annual subscription. We also generate revenue from advertising, the in-app sale of virtual goods, and the Duolingo English Test. We may run experiments that result in a different mix of revenue from these levers in the future. Duo’s Taquería also generates a small portion of our revenue.

### Cost of Revenues

Cost of revenues predominantly consists of third-party payment processing fees charged by various distribution channels in addition to hosting fees and generative AI costs. To a much lesser extent, cost of revenues includes customer support costs, such as contractor fees, wages and stock-based compensation for certain employees working in customer support. It also includes the amortization of revenue generating capitalized software, and depreciation of certain property and equipment.

We intend to continue to invest additional resources in our infrastructure to expand the capabilities of our platform and allow our users to realize the full benefit of our products. The level, timing, and relative investment in these areas could affect our cost of revenues in the future.

### Gross Profit and Gross Margin

Gross profit represents revenues less cost of revenues. Gross margin is gross profit expressed as a percentage of revenues. Our gross profit may fluctuate from period to period as our revenues fluctuate, and also as a result of the timing and amount of investments we make in items related to cost of revenues.

### Operating Expenses

Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, and stock-based compensation expense. Operating expenses also include overhead costs for facilities, including depreciation expense.

***Research and Development.*** We invest heavily in research and development to create new products and product features that are intended to help us grow our user base, engage our users, monetize our users, and teach our users. This, in turn, can impact the growth in and lifetime value of, our paid subscribers, as well as increased advertising revenue from impressions from our free users. Expenses are primarily made up of costs incurred for the development of new and improved products and features in our applications during the preliminary product development stage. Such expenses include employee-related compensation, including stock-based compensation, of engineers, designers, and product managers, in addition to materials, travel and direct costs associated with the design, required testing of our platform and depreciation of certain property and equipment. We expect engineers, designers, and product managers to represent a significant portion of our employees for the foreseeable future. We typically capitalize a portion of research and development costs once the product has reached application development phase, mostly consisting of wages, each period into capitalized software when the work is specific to launching a new product, or making major upgrades to our existing products or platforms. We regularly test product improvements with our users. Many of these tests start by making small changes in the product that affect small numbers of users. As the tests evolve, they can require increasing investment and can impact more users. This process of constant testing is how we implement many of our new products and improvements to our platform and, in total, require large investments and involve substantial time and risks to develop and launch. Some of these products and product improvements may not be well received or may take a long time for users to adopt. As a result, the impact resulting from our research and development investments may be difficult to forecast.

***Sales and Marketing.*** Sales and marketing expenses are expensed as incurred and consists primarily of new user acquisition, brand marketing, digital and social media content, and employee-related compensation, including stock-based compensation, for personnel engaged in sales and marketing functions, amortization of non-revenue generating capitalized software used to promote Duolingo and depreciation of certain property and equipment.

***General and Administrative.*** General and administrative expenses primarily consist of employee-related compensation, including stock-based compensation, for management and administrative functions, including our finance and accounting, legal, and people teams. General and administrative expenses also include certain professional services fees, general corporate and director and officer insurance, our facilities costs, public company costs to comply with the rules and regulations of the Securities and Exchange Commission (“SEC”) and the Listing Rules of the Nasdaq Global Select Market, and other general overhead costs that support our operations.

### Interest Income

Interest income consists of income earned on our cash and money market funds included in cash and cash equivalents and income earned and net accretion on our marketable securities.

### Other (expense) income, net

Other (expense) income, net consists primarily of foreign currency exchange gains and losses.

### Income taxes

Income taxes represent the tax impact associated with our operations under the tax laws of the jurisdictions in which we operate. In addition to the U.S., we also operate in foreign jurisdictions that have different statutory rates. Our effective tax rates will vary depending on the relative proportion of foreign to domestic income, changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws.

### Results of Operations

### Comparison of the three and nine months ended September 30, 2025 and 2024

The following table sets forth our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income data, including year-over-year change, for the periods indicated:

*(In thousands)*

|  | Three Months Ended September 30, 2025 | 2024 | % Change | Nine Months Ended September 30, 2025 | 2024 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $271,713 | $192,594 | 41% | $754,721 | $538,474 | 40% |
| Cost of revenues (1) (2) | 74,802 | 52,180 | 43 | 211,133 | 144,720 | 46 |
| Gross profit | 196,911 | 140,414 | 40 | 543,588 | 393,754 | 38 |
| Operating expenses: |  |  |  |  |  |  |
| Research and development (1) (2) | 82,707 | 62,878 | 32 | 226,767 | 168,903 | 34 |
| Sales and marketing (1) (2) | 35,081 | 25,574 | 37 | 91,306 | 65,679 | 39 |
| General and administrative (1) (2) | 43,964 | 38,388 | 15 | 133,399 | 110,459 | 21 |
| Total operating expenses | 161,752 | 126,840 | 28 | 451,472 | 345,041 | 31 |
| Income from operations | 35,159 | 13,574 | \>100 | 92,116 | 48,713 | 89 |
| Other (expense) income, net | (503) | 569 | nm | 2,158 | (759) | nm |
| Income before interest income and income taxes | 34,656 | 14,143 | \>100 | 94,274 | 47,954 | 97 |
| Interest income | 11,793 | 11,246 | 5 | 33,635 | 32,000 | 5 |
| Income before income taxes | 46,449 | 25,389 | 83 | 127,909 | 79,954 | 60 |
| (Benefit from) provision for income taxes | (245,746) | 2,029 | nm | (244,202) | 5,287 | nm |
| Net income and comprehensive income | $292,195 | $23,360 | \>100 | $372,111 | $74,667 | \>100 |

(1) Includes stock-based compensation expenses as follows:

*(In thousands)*

|  | Three Months Ended September 30, 2025 | 2024 | Nine Months Ended September 30, 2025 | 2024 |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenues | $28 | $20 | $72 | $54 |
| Research and development | 22,821 | 16,230 | 61,115 | 43,331 |
| Sales and marketing | 1,633 | 1,305 | 4,657 | 3,557 |
| General and administrative | 11,083 | 11,404 | 35,331 | 33,748 |
| Total | $35,565 | $28,959 | $101,175 | $80,690 |

34

(2) Includes amortization of capitalized software and depreciation of property and equipment as follows:

*(In thousands)*

|  | Three Months Ended September 30, 2025 | 2024 | Nine Months Ended September 30, 2025 | 2024 |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenues (a) | $2,131 | $1,397 | $6,299 | $3,189 |
| Research and development | 826 | 648 | 2,451 | 1,588 |
| Sales and marketing (a) | 242 | 218 | 713 | 646 |
| General and administrative | 354 | 613 | 1,120 | 1,770 |
| Total | $3,553 | $2,876 | $10,583 | $7,193 |

(a) Amortization of capitalized software is recorded to Cost of revenue and Sales and marketing for revenue and non-revenue generating capitalized software, respectively.

The following table sets forth the components of our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for each of the periods presented as a percentage of revenue:

|  | Three Months Ended September 30, 2025 | 2024 | Nine Months Ended September 30, 2025 | 2024 |
| --- | ---: | ---: | ---: | ---: |
| Revenues | 100% | 100% | 100% | 100% |
| Cost of revenues | 28 | 27 | 28 | 27 |
| Gross profit | 72 | 73 | 72 | 73 |
| Operating expenses: |  |  |  |  |
| Research and development | 30 | 33 | 30 | 31 |
| Sales and marketing | 13 | 13 | 12 | 12 |
| General and administrative | 16 | 20 | 18 | 21 |
| Total operating expenses | 60 | 66 | 60 | 64 |
| Income from operations | 13 | 7 | 12 | 9 |
| Other (expense) income, net | — | — | — | — |
| Income before interest income and income taxes | 13 | 7 | 12 | 9 |
| Interest income | 4 | 6 | 4 | 6 |
| Income before income taxes | 17 | 13 | 17 | 15 |
| (Benefit from) provision for income taxes | (90) | 1 | (32) | 1 |
| Net income and comprehensive income | 108% | 12% | 49% | 14% |

### Revenues

Revenues increased by $79.1 million, or 41%, to $271.7 million during the three months ended September 30, 2025, from revenues of $192.6 million during the three months ended September 30, 2024. Revenues increased $216.2 million, or 40%, to $754.7 million during the nine months ended September 30, 2025, from revenues of $538.5 million during the nine months ended September 30, 2024. The main drivers of the increases were:

- Subscription revenue increased by $71.9 million, or 46%, to $229.5 million during the three months ended September 30, 2025 and $197.9 million, or 46%, to $631.2 million during the nine months ended September 30, 2025, primarily due to an increase in the average number of paid subscribers during each period;
- Other revenue increased by $7.2 million, or 21%, to $42.2 million during the three months ended September 30, 2025 and $18.3 million, or 17%, to $123.6 million during the nine months ended

September 30, 2025, primarily due to increased advertising revenue, resulting from an increase in DAUs, which resulted in increased advertisements served.

The following table provides the changes in revenues by product type:

*(in thousands)*

|  | Three Months Ended September 30, 2025 | 2024 | Change | % Change | Nine Months Ended September 30, 2025 | 2024 | Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Subscription | $229,491 | $157,617 | $71,874 | 46% | $631,156 | $433,214 | $197,942 | 46 |
| Other (1) | 42,222 | 34,977 | 7,245 | 21 | 123,565 | 105,260 | 18,305 | 17 |
| Total revenues | $271,713 | $192,594 | $79,119 | 41% | $754,721 | $538,474 | $216,247 | 40 |

(1) Other revenue is comprised mainly of Advertising, Duolingo English Test, and In-App Purchases.

**Cost of Revenues and Gross Margin.** Total gross margin decreased to 72.5% from 72.9% during the three months ended September 30, 2025 and 2024, respectively, primarily due to decreases in subscription and advertising gross margins related to an increase in generative AI costs associated with expansion of our Duolingo Max subscription tier and increased hosting costs. Total gross margin decreased to 72.0% from 73.1% during the nine months ended September 30, 2025 and 2024, respectively, primarily due to a decrease in subscription gross margins related to an increase in generative AI costs associated with expansion of our Duolingo Max subscription tier.

The following table provides the change in cost of revenues, along with related gross margins:

*(In thousands, except gross margin)*

|  | Three Months Ended September 30, 2025 Costs | Gross Margin | 2024 Costs | Gross Margin | Change Costs | Gross Margin | Nine Months Ended September 30, 2025 Costs | Gross Margin | 2024 Costs | Gross Margin | Change Costs | Gross Margin |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Total cost of revenues | $74,802 | 72.5% | $52,180 | 72.9% | $22,622 | (0.4)% | $211,133 | 72.0% | $144,720 | 73.1% | $66,413 | (1.1)% |

### Operating Expenses

***Research and Development.*** Research and development expense increased by $19.8 million, or 32%, to $82.7 million during the three months ended September 30, 2025 from $62.9 million during the three months ended September 30, 2024. The increase was mainly due to:

- Increased net personnel costs of $16.6 million, driven primarily by the growth in headcount. Total gross personnel costs increased by $16.8 million, of which $9.6 million of the increase was related to stock-based compensation expenses related to equity awards in addition to acquisition related costs of $2.6 million. This increase was reduced by $0.3 million of wages recorded as capitalized software as compared to the same period in the prior year;
- Increased web services and technology costs of $2.4 million; and
- Increased contractor, travel, and other costs of $0.8 million.

Research and development expense increased by $57.9 million, or 34%, to $226.8 million during the nine months ended September 30, 2025 from $168.9 million during the nine months ended September 30, 2024. The increase was mainly due to:

- Increased net personnel costs of $48.3 million, driven primarily by the growth in headcount. Total gross personnel costs increased by $46.7 million, including increased stock-based compensation

expenses related to equity awards of $20.1 million in addition to acquisition related costs of $2.6 million. Additionally, there was an increase of $1.6 million due to a reduction in wages recorded as capitalized software as compared to the same period in the prior year;

- Increased web services and technology costs of $6.6 million; and
- Increased contractor, travel and other costs of $3.0 million.

Research and development continues to be our largest operating expense as we test and experiment with new products and product features and improve existing ones to drive engagement and efficacy. Increased engagement and efficacy, we believe, help drive organic growth in MAUs and DAUs, growth in, and better retention of, paid subscribers, as well as increased advertising opportunities with free users.

***Sales and Marketing.*** Sales and marketing expense increased by $9.5 million, or 37%, to $35.1 million during the three months ended September 30, 2025 from $25.6 million during the three months ended September 30, 2024

This increase was mainly due to:

- Increased direct marketing and other expenses of $8.1 million; and
- Increased personnel costs of $1.4 million driven primarily by the growth in headcount, including increased stock-based compensation expense of $0.4 million.

Sales and marketing expense increased by $25.6 million, or 39%, to $91.3 million during the nine months ended September 30, 2025 from $65.7 million during the nine months ended September 30, 2024.

This increase was mainly due to:

- Increased direct marketing and other expenses of $20.3 million; and
- Increased personnel costs of $5.3 million driven primarily by the growth in headcount, including increased stock-based compensation expense of $1.3 million.

***General and Administrative.*** General and administrative expense increased by $5.6 million, or 15%, to $44.0 million during the three months ended September 30, 2025 from $38.4 million during the three months ended September 30, 2024. This increase was mainly due to:

- Increased personnel costs of $2.4 million, stock-based compensation expenses related to equity awards remained flat for the period;
- Increased web services and technology costs of $1.4 million;
- Increased travel, meals and professional fees of $1.3 million; and
- Increased facilities expense of $1.1 million.

The above increases were partially offset by decreases in insurance and other costs of $0.6 million.

General and administrative expense increased by $22.9 million, or 21%, to $133.4 million during the nine months ended September 30, 2025 from $110.5 million during the nine months ended September 30, 2024. This increase was mainly due to:

- Increased personnel costs of $13.3 million, including an increase of $6.5 million in stock-based compensation expenses related to equity awards;
- Increased web services and technology costs of $4.0 million;
- Increased travel and meals expenses of $3.0 million;
- Increased office expenses of $1.6 million; and
- Increased acquisition related costs of $1.0 million.

### Interest Income

Interest income increased by $0.5 million, or 5%, to $11.8 million during the three months ended September 30, 2025, from $11.2 million during the three months ended September 30, 2024. Interest income increased by $1.6 million, or 5%, to $33.6 million during the nine months ended September 30, 2025, from $32.0 million during the nine months ended September 30, 2024. Both period increases were due to higher average interest-bearing balances partially offset by slightly lower interest rates.

### Other (expense) income, net

Other (expense) income, net increased by $1.1 million, during the three months ended September 30, 2025, and $2.9 million during the nine months ended September 30, 2025, compared to the same respective prior year periods, mainly from the impact from changes in foreign currency rates.

### Income taxes

The income tax benefit was $245.7 million and $244.2 million during the three and nine months ended September 30, 2025, respectively, compared to a provision of $2.0 million and $5.3 million during the three and nine months ended September 30, 2024, respectively. The income tax benefit for the three and nine months ended September 30, 2025, was primarily related to the release of our U.S. valuation allowance on certain deferred tax assets and other discrete tax items. As of September 30, 2025, based on all available positive and negative evidence, having demonstrated sustained profitability which is objective and verifiable, and taking into account anticipated future earnings, we concluded that it is more likely than not that our U.S. federal and state deferred tax assets will be realizable, resulting in the release of our valuation allowance. We will continue to monitor the need for a valuation allowance against our deferred tax assets on a quarterly basis (see Note 9, Income Taxes to our financial statements included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q for further details).

The quarter’s tax benefit also reflects the impact of the “One Big Beautiful Bill Act” tax legislation, which modified the treatment of domestic research and development expenditures, and now allows for the immediate expensing of domestic research and development expenses.

### Liquidity and Capital Resources

We finance our operations primarily through revenues and the net proceeds we have received from the issuance of equity.

As of September 30, 2025, we had $1,011.5 million in cash and cash equivalents and $109.9 million of short-term investments. Our cash and cash equivalents primarily consist of bank deposits and money market funds. Our short-term investments consist mainly of corporate debt securities, certificates of deposit, and commercial paper.

We believe that our existing cash and cash equivalents, short-term investments and cash flow from operations will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our subscription growth rate and renewal activity, the timing of cash received from our payment processing platforms, the expansion and efficacy of our sales and marketing activities, the research and development investment related to the introduction of new products and the enhancements to existing products, and the current uncertainty in the global markets impacting, for example, consumer spending, inflation and foreign currency exchange rates. If we cannot meet our future capital requirements, we may be required to seek additional liquidity. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business and financial condition and results of operations.

During the nine months ended September 30, 2025, we executed an amendment to our Pittsburgh headquarters lease, increasing our leased space and extending the term through 2036. As a result, we recognized an additional operating lease right-of-use asset and lease liability totaling approximately $39.0 million. The amendment also provides a tenant improvement allowance of $6.8 million, which will reduce future cash lease payments.

A substantial source of our cash from operations comes from deferred revenue, which is included in the liabilities section of our Unaudited Condensed Consolidated Balance Sheet. Deferred revenues consists of the unearned portion of customer billings, which is recognized as revenue in accordance with our revenue recognition policy. As of September 30, 2025, we had deferred revenues of $441.7 million, which is recorded as a current liability and expected to be recognized as revenue in the next 12 months, provided all other revenue recognition criteria have been met.

The following table summarizes our cash flows for the periods presented:

*(In thousands)*

|  | Nine Months Ended September 30, 2025 | 2024 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $280,545 | $202,169 |
| Net cash used for investing activities | (64,496) | (106,965) |
| Net cash provided by financing activities | 9,702 | 11,595 |
| Net increase in cash, cash equivalents and restricted cash | $225,751 | $106,799 |

### Operating Activities

Cash flows from operating activities can fluctuate significantly from period to period due to timing of payments and cash collections. Our largest source of operating cash is cash collection from sales of subscriptions to our users. Our primary uses of cash from operating activities are for personnel expenses, marketing expenses, hosting expenses, and overhead expenses.

Cash provided by operating activities increased by $78.4 million, or 39%, to $280.5 million for the nine months ended September 30, 2025 from $202.2 million for the nine months ended September 30, 2024. This increase was primarily driven by higher net income during the current period, excluding non-cash items. Additionally, growth in deferred revenue contributed to the increase in cash provided by operating activities.

### Investing Activities

Cash used for investing activities decreased by $42.5 million to $64.5 million for the nine months ended September 30, 2025, from $107.0 million for the nine months ended September 30, 2024. This decrease was primarily due to a $64.6 million year‑over‑year decrease in net investment activity, and 2025 net purchases of $17.0 million as compared to 2024 net purchases of $81.7 million. This decrease was partially offset by an increase of $26.5 million related to cash paid for acquisitions and $4.8 million of lower capitalized software and property and equipment purchases.

### Financing Activities

Cash provided by financing decreased by $2.0 million to $9.7 million for the nine months ended September 30, 2025, from $11.6 million for the nine months ended September 30, 2024. Cash provided by financing activities in both periods is due to proceeds from exercises of stock options.

### Critical Accounting Estimates

Our Unaudited Condensed Consolidated Financial Statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of Unaudited Condensed Consolidated Financial Statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.

There have been no material changes to our critical accounting policies and estimates as compared to those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our Annual Report on Form 10-K.

### Recent Accounting Pronouncements

See Note 1, “Description of the Business and Basis of Presentation,” and Note 2, “Summary of Significant Accounting Policies,” in the notes to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.

## Market risk

As filed, 2,678 characters.

### Interest Rate Risk

As of September 30, 2025, we had $900.2 million of cash equivalents invested in money market funds and $208.6 million of investments mainly in corporate debt securities, U.S. Treasury securities, certificates of deposit, asset-backed securities and commercial paper. Our cash and cash equivalents are held for working capital purposes in addition to future investments in our product. We do not enter into investments for trading or speculative purposes. Our investments are exposed to market risk due to a fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. As of September 30, 2025, a hypothetical 10% relative change in interest rates would not have a material impact on our Unaudited Condensed Consolidated Financial Statements.

### Foreign Currency Exchange Risk

Our reporting currency and the functional currency of our wholly owned foreign subsidiaries is the U.S. dollar. Certain of our payment providers translate our payments from local currency into USD at time of settlement, which means that during periods of a strengthening U.S. dollar, our international receipts could be reduced. Our operating expenses are denominated in the currencies of the countries in which our operations are located, which are primarily in the U.S., China and Germany. Our consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. In addition, as foreign currency exchange rates fluctuate, the translation of our international receipts into U.S. dollars affects the period-over-period comparability of our operating results and can result in foreign currency exchange gains and losses. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments, although we may choose to do so in the future. A hypothetical 10% increase or decrease in the relative value of the U.S. dollar to other currencies would not have a material effect on our operating results.

### Inflation Risk

Inflationary factors such as increases in costs may adversely affect our results of operations. We do not believe that inflation has had a material effect on our business, financial condition or results of operations to date. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition or results of operations.

## Controls and procedures

As filed, 2,284 characters.

### Limitations on Effectiveness of Controls and Procedures

Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their desired objectives. Management does not expect, however, that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the three months ended September 30, 2025 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 562 characters.

The Company's risk factors are described in Part I, Item 1A, "Risk Factors" of the Annual Report on Form 10-K. These factors could materially adversely affect our business, financial condition, and results of operations, and could cause our actual results to differ materially from our historical results or the results contemplated by any forward-looking statements contained in this Quarterly Report on Form 10-Q. There have been no material changes from the risk factors previously disclosed under the heading “Risk Factors” in the Annual Report on Form 10-K.

Filed Nov 6, 2025.
Source: SEC EDGAR, the filing index for accession 0001628280-25-049743. Last ingested by Listed: Oct 24, 2026, 15:13 ET. No prices; not investment advice.