DUOL

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 22 Our flagship app has become the world’s most popular way to learn languages and the top-grossing Education app in the App Stores, offering over 250 total language courses to over 58 million daily active users for the three months ended June 30, 2026. We believe that we have become the preeminent online destination for language learning due to our beautifully designed products, exceptional user engagement, and demonstrated learning efficacy. Key Operating Metrics and Non-GAAP Financial Measures We regularly review a number of key operating metrics and non-GAAP financial measures to evaluate our business, measure our performance, identify trends, prepare financial projections and make business decisions. The measures set forth below should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”). Daily active users (DAUs), along with paid subscribers, subscription bookings and total bookings, are operating metrics that help inform management about the underlying growth in users of our platform, and are a measure of our monetization efforts. To calculate the year-over-year change in DAUs for a given period, we subtract the average for the same period in the previous year from the average for the same period in the current year and divide the result by the average for the same period in the previous year. Other companies, including companies in our industry, may calculate these measures differently or not at all, which reduces their usefulness as comparative measures. Three Months Ended June 30, (In millions) 2026 2025 Operating Metrics Daily active users (DAUs) (1) 58.7 47.7 Paid subscribers (at period end) 12.7 10.9 Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2026 2025 2026 2025 Operating Metrics Subscription bookings $ 250,316 $ 227,259 $ 518,381 $ 459,443 Total bookings $ 289,054 $ 268,020 $ 597,538 $ 539,668 Non-GAAP Financial Measures Net income (GAAP) $ 33,158 $ 44,781 $ 76,618 $ 79,916 Adjusted EBITDA $ 77,315 $ 78,680 $ 160,747 $ 141,484 Net cash provided by operating activities (GAAP) $ 88,260 $ 90,675 $ 239,031 $ 196,306 Free cash flow $ 78,630 $ 86,324 $ 226,416 $ 189,336 _______________ (1) We primarily evaluate user engagement using DAUs, with MAUs as a supplementary metric. MAUs were 140.6 million and 128.3 million for the three months ended June 30, 2026 and 2025, respectively. Operating Metrics Daily active users (DAUs). DAUs are defined as unique users who engage with our Duolingo App or the learning section of our website each calendar day. DAUs are reported for a measurement period by taking the average of the DAUs for each day in that measurement period. The measurement period for DAUs is the three months ended June 30, 2026 and the same period in the prior year where applicable, and the 23 analysis of results is based on those periods. DAUs are a measure of the consistent engagement of our global user community on Duolingo. We had approximately 58.7 million and 47.7 million DAUs for the three months ended June 30, 2026 and 2025, respectively, representing an increase of 23% from the prior year period, driven largely by an increase in retention of current users. We grew DAUs through a combination of product initiatives and marketing. Product improvements, such as making the app more social and engaging, helped attract new users, retain existing users, and reengage former users, while marketing expanded our reach. Paid Subscribers. Paid subscribers are defined as users who pay for access to any Duolingo subscription offering and had an active subscription as of the end of the measurement period. Each unique user account is treated as a single paid subscriber regardless of whether such user purchases multiple subscriptions, and the count of paid subscribers does not include users who are currently on a free trial or who are non-paying members of a family plan. As of June 30, 2026 and 2025, we had approximately 12.7 million and 10.9 million paid subscribers, respectively, representing an increase of 17% from the prior year period. We grew paid subscribers through product initiatives designed to make our subscription offerings more appealing, which helped attract new subscribers and retain existing subscribers. Subscription Bookings and Total Bookings. Subscription bookings represent the amounts we receive from a purchase of any Duolingo subscription offering. Total bookings include subscription bookings, income from advertising networks for advertisements served to our users, purchases of the Duolingo English Test, and in-app purchases of virtual goods ("IAPs"). We believe bookings provide an indication of trends in our operating results, including cash flows, that are not necessarily reflected in our revenues because we recognize subscription revenues ratably over the lifetime of a subscription, the majority of which are twelve months in duration. For the three months ended June 30, 2026 and 2025, we generated $250.3 million and $227.3 million of subscription bookings, respectively, representing an increase of $23.1 million or 10%, driven by growth in volume and price of subscriptions sold. For the six months ended June 30, 2026 and 2025, we generated $518.4 million and $459.4 million of subscription bookings, respectively, representing an increase of $58.9 million or 13%, driven by growth in volume and price of subscriptions sold. For the three months ended June 30, 2026 and 2025, we generated $289.1 million and $268.0 million total bookings, respectively, representing an increase of $21.0 million or 8% from the prior year period. For the six months ended June 30, 2026 and 2025, we generated $597.5 million and $539.7 million total bookings, respectively, representing an increase of $57.9 million or 11% from the prior year period. We grew total bookings primarily through growth in subscription bookings. Monthly active users (MAUs). MAUs are defined as unique users who engage with our Duolingo App or the learning section of our website each month. MAUs are reported for a measurement period by taking the average of the MAUs for each calendar month in that measurement period. The measurement period for MAUs is the three months ended June 30, 2026 and the same period in the prior year where 24 applicable, and the analysis of results is based on those periods. MAUs are a supplemental measure and help illustrate the size of our global active user community on Duolingo. We had approximately 140.6 million and 128.3 million MAUs for the three months ended June 30, 2026 and 2025, respectively, representing an increase of 10% from the prior year period. We grew MAUs through the same product and marketing initiatives as DAUs. Non-GAAP Financial Measures We use certain non-GAAP financial measures to supplement our reported financial results, which are presented in accordance with GAAP. These non-GAAP financial measures include Adjusted EBITDA, free cash flow and constant-currency measures. We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. By excluding certain items that may not be indicative of our recurring core operating results, we believe that Adjusted EBITDA, free cash flow and constant-currency provide meaningful supplemental information regarding our performance. The effect of currency exchange rates on our business is an important factor in understanding period-to-period comparisons. We use non-GAAP constant-currency measures and non-GAAP percentage change in constant-currency measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Accordingly, we believe these non-GAAP financial measures are useful to investors and others because they allow for additional information with respect to financial measures used by management in its financial and operational decision-making and they may be used by our institutional investors and the analyst community to help them analyze the health of our business. However, there are a number of limitations related to the use of non-GAAP financial measures, and these non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with GAAP. Other companies, including companies in our industry, may calculate these non-GAAP financial measures differently or not at all, which reduces their usefulness as comparative measures. Adjusted EBITDA. Adjusted EBITDA is defined as net income excluding interest income, income taxes, depreciation and amortization, stock-based compensation expenses related to equity awards, including employer payroll taxes related to equity transactions, acquisition transaction and integration costs, acquisition earn-out costs, and impairment of capitalized software. Adjusted EBITDA is used by management to evaluate the financial performance of our business and we present Adjusted EBITDA because we believe it is helpful in highlighting trends in our operating results and that it is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. The following 25 table presents a reconciliation of our net income, the most directly comparable financial measure presented in accordance with GAAP, to Adjusted EBITDA. Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2026 2025 2026 2025 Net income $ 33,158 $ 44,781 $ 76,618 $ 79,916 Add (deduct): Interest income (11,831) (11,427) (23,642) (21,842) Provision for income taxes 12,208 1,669 24,300 1,544 Depreciation and amortization 4,247 3,440 8,438 7,030 Stock-based compensation expenses related to equity awards (1) 38,606 39,527 73,761 74,046 Acquisition transaction and integration costs (2) — 590 — 590 Acquisition earn-out costs (3) 349 100 694 200 Impairment of capitalized software (4) 578 — 578 — Adjusted EBITDA $ 77,315 $ 78,680 $ 160,747 $ 141,484 ________________ (1)In addition to stock-based compensation expense of $38.2 million and $34.6 million for the three months ended June 30, 2026 and 2025, respectively, and $72.9 million and $65.6 million for the six months ended June 30, 2026 and 2025, respectively, this includes costs incurred related to taxes paid on equity transactions as follows: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2026 2025 2026 2025 Research and development $ 252 $ 1,605 $ 568 $ 2,764 Sales and marketing 13 85 28 157 General and administrative 131 3,245 308 5,515 Total $ 396 $ 4,935 $ 904 $ 8,436 (2)Represents costs incurred related to acquisitions, which are included in General and administration expense within our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income. (3)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. (4)Represents impairment of capitalized software, which is included within Research and development expense within our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income. For the three months ended June 30, 2026 and 2025, we generated net income of $33.2 million and $44.8 million, respectively representing a decrease of $11.6 million. For the six months ended June 30, 2026 and 2025, we generated net income of $76.6 million and $79.9 million, respectively, representing a decrease of $3.3 million. The decrease in net income for the three months ended June 30, 2026, as compared to the comparative prior period was primarily due to operating expenses increasing slightly faster than revenue during the period. The increase in net income for the six months ended June 30, 2026, as compared to the comparative prior period was primarily due to revenue growth and gross margin expansion during the period. For the three months ended June 30, 2026 and 2025, we generated Adjusted EBITDA of $77.3 million and $78.7 million, respectively, representing a decrease of $1.4 million. For the six months ended June 30, 2026 and 2025, we generated Adjusted EBITDA of $160.7 million and $141.5 million, respectively, 26 representing an increase of $19.3 million. Adjusted EBITDA changed as compared to the comparative periods for the reasons noted above in net income. 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. 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: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2026 2025 2026 2025 Net cash provided by operating activities $ 88,260 $ 90,675 $ 239,031 $ 196,306 Less: Capitalized software development costs and purchases of intangible assets (2,734) (3,153) (5,587) (4,463) Less: Purchases of property and equipment (6,896) (1,198) (7,028) (2,507) Free cash flow $ 78,630 $ 86,324 $ 226,416 $ 189,336 For the three months ended June 30, 2026 and 2025, we generated $88.3 million and $90.7 million of net cash provided by operating activities, respectively, representing a decrease of $2.4 million. The decrease was primarily due to changes in working capital during the period. For the six months ended June 30, 2026 and 2025, we generated $239.0 million and $196.3 million of net cash provided by operating activities, respectively, representing an increase of $42.7 million. The increase was primarily due to higher operating income and changes in working capital. For the three months ended June 30, 2026 and 2025, we generated $78.6 million and $86.3 million of free cash flow, respectively, representing a decrease of $7.7 million. Free cash flow decreased in line with operating cash flow, reflecting the same underlying drivers of cash provided by operating activities and by higher capital investments as we expand our office footprints. For the six months ended June 30, 2026 and 2025, we generated $226.4 million and $189.3 million of free cash flow, respectively, representing an increase of $37.1 million. Free cash flow increased in line with operating cash flow, reflecting the same underlying drivers of cash provided by operating activities, partially offset by higher capital investments. 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. 27 The following table provides the changes in bookings and revenues on a reported basis and constant-currency basis: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2026 2025 % Change Constant-Currency Change % 2026 2025 % Change Constant-Currency Change % Revenue Subscription $ 258,035 $ 210,678 22% 21% $ 508,943 $ 401,665 27% 24% Total revenues $ 298,454 $ 252,265 18% 17% $ 590,421 $ 483,008 22% 19% Bookings Subscription $ 250,316 $ 227,259 10% 9% $ 518,381 $ 459,443 13% 10% Total Bookings $ 289,054 $ 268,020 8% 6% $ 597,538 $ 539,668 11% 8% 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. 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 third-party 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 in the development and enhancement of our products to expand their capabilities and allow our users to realize the full benefit of our offerings. 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 28 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 rate may vary based on the relative proportion of foreign to domestic income, the tax effects of stock-based compensation (which can fluctuate with our stock price), and changes in tax laws. 29 Results of Operations Comparison of the three and six months ended June 30, 2026 and 2025 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: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2026 2025 % Change 2026 2025 % Change Revenues $ 298,454 $ 252,265 18% $ 590,421 $ 483,008 22% Cost of revenues (1) (2) 81,714 69,684 17 160,585 136,331 18 Gross profit 216,740 182,581 19 429,836 346,677 24 Operating expenses: Research and development (1) (2) 92,195 73,670 25 175,169 144,060 22 Sales and marketing (1) (2) 40,007 29,563 35 79,256 56,225 41 General and administrative (1) (2) 50,593 45,985 10 96,939 89,435 8 Total operating expenses 182,795 149,218 23 351,364 289,720 21 Income from operations 33,945 33,363 2 78,472 56,957 38 Other (expense) income, net (410) 1,660 nm (1,196) 2,661 nm Income before interest income and income taxes 33,535 35,023 (4) 77,276 59,618 30 Interest income 11,831 11,427 4 23,642 21,842 8 Income before income taxes 45,366 46,450 (2) 100,918 81,460 24 Provision for income taxes 12,208 1,669 >100 24,300 1,544 >100 Net income and comprehensive income $ 33,158 $ 44,781 (26)% $ 76,618 $ 79,916 (4)% ________________ (1)Includes stock-based compensation expenses as follows: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2026 2025 2026 2025 Cost of revenues $ 31 $ 24 $ 54 $ 44 Research and development 26,861 20,481 49,384 38,294 Sales and marketing 2,008 1,593 3,804 3,024 General and administrative 9,310 12,494 19,615 24,248 Total $ 38,210 $ 34,592 $ 72,857 $ 65,610 (2)Includes amortization of capitalized software and depreciation of property and equipment as follows: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2026 2025 2026 2025 Cost of revenues (a) $ 2,824 $ 1,957 $ 5,598 $ 4,168 Research and development 859 869 1,705 1,625 Sales and marketing (a) 165 250 327 471 General and administrative 399 364 808 766 Total $ 4,247 $ 3,440 $ 8,438 $ 7,030 ________________ (a) Amortization of capitalized software is recorded to Cost of revenue and Sales and marketing for revenue and non-revenue generating capitalized software, respectively. 30 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 June 30, Six Months Ended June 30, 2026 2025 2026 2025 Revenues 100 % 100 % 100 % 100 % Cost of revenues 27 28 27 28 Gross profit 73 72 73 72 Operating expenses: Research and development 31 29 30 30 Sales and marketing 13 12 13 12 General and administrative 17 18 16 19 Total operating expenses 61 59 60 60 Income from operations 11 13 13 12 Other (expense) income, net — 1 — 1 Income before interest income and income taxes 11 14 13 12 Interest income 4 5 4 5 Income before income taxes 15 18 17 17 Provision for income taxes 4 1 4 — Net income and comprehensive income 11 % 18 % 13 % 17 % Revenues Revenues increased by $46.2 million, or 18% to $298.5 million during the three months ended June 30, 2026, from revenues of $252.3 million during the three months ended June 30, 2025. Revenues increased by $107.4 million, or 22%, to $590.4 million during the six months ended June 30, 2026, from revenues of $483.0 million during the six months ended June 30, 2025. The following table provides the changes in revenues by product type: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2026 2025 Change % Change 2026 2025 Change % Change Subscription $258,035 $210,678 $47,357 22% $508,943 $401,665 $107,278 27% Other Advertising 21,052 20,603 449 2 41,666 38,485 3,181 8 Duolingo English Test 10,109 10,088 21 — 21,426 22,074 (648) (3) In-App Purchases 8,002 10,390 (2,388) (23) 16,448 19,832 (3,384) (17) Other 1,256 506 750 >100 1,938 952 986 >100 Total Other $40,419 $41,587 $(1,168) (3)% $81,478 $81,343 $135 —% Total revenues $298,454 $252,265 $46,189 18% $590,421 $483,008 $107,413 22% The main drivers of the increases were: •Subscription revenue increased $47.4 million, or 22%, to $258.0 million during the three months ended June 30, 2026, and subscription revenue increased $107.3 million, or 27%, to $508.9 million during the six months ended June 30, 2026, primarily due to growth in the average number of paid subscribers, and to a lesser extent, an increase in average revenue per user. 31 •Other revenue decreased $1.2 million, or 3%, to $40.4 million during the three months ended June 30, 2026, and other revenue increased $0.1 million to $81.5 million during the six months ended June 30, 2026. The decrease in the three months ended June 30, 2026 was primarily due to decreased IAP revenue. The increase in the six months ended June 30, 2026 was primarily driven by higher advertising revenue and, to a lesser extent, higher revenue from partnerships, partially offset by lower IAP revenue. Cost of Revenues and Gross Margin. Total gross margin increased to 72.6% from 72.4% during the three months ended June 30, 2026 and 2025, and total gross margin increased to 72.8% from 71.8% during the six months ended June 30, 2026 and 2025. The increase was primarily attributable to an increase in subscription gross margin, reflecting continued reductions in per-unit third-party AI costs. The following table provides the change in cost of revenues, along with related gross margins: Three Months Ended June 30, Six Months Ended June 30, 2026 2025 Change 2026 2025 Change (In thousands, except gross margin) Costs Gross Margin Costs Gross Margin Costs Gross Margin Costs Gross Margin Costs Gross Margin Costs Gross Margin Total cost of revenues $ 81,714 72.6 % $ 69,684 72.4 % $ 12,030 0.2 % $ 160,585 72.8 % $ 136,331 71.8 % $ 24,254 1.0% Operating Expenses Research and Development. Research and development expense increased by $18.5 million, or 25%, to $92.2 million during the three months ended June 30, 2026 from $73.7 million during the three months ended June 30, 2025. The increase was primarily due to higher net personnel costs of $13.8 million, driven primarily by growth in headcount, including increased stock-based compensation expenses related to equity awards of $5.0 million, and increased software and third-party AI costs of $3.3 million. Research and development expense increased by $31.1 million, or 22%, to $175.2 million during the six months ended June 30, 2026 from $144.1 million during the six months ended June 30, 2025. The increase was primarily due to higher net personnel costs of $23.6 million, driven primarily by the growth in headcount, including increased stock-based compensation expenses related to equity awards of $8.9 million, and increased software and third-party AI costs of $5.5 million. Sales and Marketing. Sales and marketing expense increased by $10.4 million, or 35%, to $40.0 million during the three months ended June 30, 2026 from $29.6 million during the three months ended June 30, 2025. This increase was mainly due to increased advertising costs of $8.6 million. Sales and marketing expense increased by $23.0 million, or 41%, to $79.3 million during the six months ended June 30, 2026 from $56.2 million during the six months ended June 30, 2025. This increase was mainly due to increased advertising costs of $19.2 million. General and Administrative. General and administrative expense increased by $4.6 million, or 10%, to $50.6 million during the three months ended June 30, 2026, from $46.0 million during the three months ended June 30, 2025. This increase was primarily due to higher legal and accounting fees of $5.4 million and higher facilities and office expenses of $1.2 million, partially offset by a $3.7 million decrease in personnel costs. The decrease in personnel costs was primarily due to a $3.2 million decrease in stock-based compensation expense, including the impact of a PSU award modification described within Part I, Item 1 Financial Statements – Note 8, “Stockholders’ Equity”, and lower employer taxes related to stock-based compensation, partially offset by higher gross wages resulting from increased average headcount. 32 General and administrative expense increased by $7.5 million, or 8%, to $96.9 million during the six months ended June 30, 2026, from $89.4 million during the six months ended June 30, 2025. This increase was primarily due to higher legal and accounting fees of $5.8 million, higher facilities and office expenses of $4.0 million, partially offset by a decrease in personnel costs of $4.8 million. The decrease in personnel costs was driven by the same factors described above for the three-month period, including lower stock-based compensation expense and employer taxes related to stock-based compensation, partially offset by higher gross wages resulting from increased average headcount. Interest Income Interest income increased by $0.4 million, or 4%, to $11.8 million during the three months ended June 30, 2026 from $11.4 million during the three months ended June 30, 2025. Interest income increased by $1.8 million, or 8%, to $23.6 million during the six months ended June 30, 2026, from $21.8 million during the six months ended June 30, 2025. Both period increases were due to higher average interest-bearing balances partially offset by lower interest rates. Other (expense) income, net Other (expense) income, net was $0.4 million of expense during the three months ended June 30, 2026 and $1.7 million of income during the three months ended June 30, 2025, respectively, and $1.2 million of expense during the six months ended June 30, 2026 and $2.7 million of income during the six months ended June 30, 2025. The fluctuations were mainly from the impact from changes in foreign currency rates compared to prior periods. Income taxes The income tax provision was $12.2 million and $24.3 million during the three and six months ended June 30, 2026, respectively, and $1.7 million and $1.5 million during the three and six months ended June 30, 2025, respectively. This increase was primarily due to discrete tax expense related to stock-based compensation activity in the current period compared to benefits in the prior year period. 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 June 30, 2026, we had $1,181 million in cash and cash equivalents and $133 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, U.S. Treasury securities 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, and any future share repurchases, 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 investments, 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. 33 In February 2026, Duolingo’s Board of Directors authorized a share repurchase program of up to $400 million. Repurchases under the program may be made from time to time in the open market or through privately negotiated transactions, pursuant to Rule 10b5-1 trading plans or other available means, each in compliance with Rule 10b-18 under the Exchange Act. The actual timing, number and value of shares repurchased is subject to various factors such as market conditions, the Company’s capital and liquidity positions, contractual requirements and other considerations. The timing and amount of any repurchases will be determined at the Company’s discretion, and the program does not obligate the Company to acquire any particular amount of shares. The program has no expiration date and may be terminated, modified or discontinued at any time. During the six months ended June 30, 2026, the Company repurchased a total of 694,630 shares of the Company’s Class A common stock through open market purchases at an average per share price of $101.15 for a total of $70.3 million. 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 consist of the unearned portion of customer billings, primarily related to subscription offerings, which is recognized as revenue in accordance with our revenue recognition policy. As of June 30, 2026, we had deferred revenues of $505.1 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: Six Months Ended June 30, (In thousands) 2026 2025 Net cash provided by operating activities $ 239,031 $ 196,306 Net cash used for investing activities (8,469) (12,821) Net cash (used for) provided by financing activities (86,064) 6,955 Net increase in cash, cash equivalents and restricted cash $ 144,498 $ 190,440 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 $42.7 million, or 22%, to $239.0 million for the six months ended June 30, 2026 from $196.3 million for the six months ended June 30, 2025. This increase was primarily driven by higher operating income and changes in working capital. Investing Activities Cash used for investing activities decreased by $4.4 million to $8.5 million for the six months ended June 30, 2026, from $12.8 million for the six months ended June 30, 2025. This decrease was primarily due to higher net maturities of investments of $10.0 million during the six months ended June 30, 2026, partially offset by a $5.6 million increase in capital expenditures. Financing Activities Cash used for financing activities for the six months ended June 30, 2026 was due to repurchases of common stock of $69.6 million in addition to taxes paid on the net-share settlements of share-based 34 compensation awards of $18.8 million. These amounts were partially offset by proceeds from exercises of stock options of $2.3 million. Cash provided by financing activities for the six months ended June 30, 2025 was due to proceeds from exercises of stock options of $7.0 million. 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 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.