Good day, and welcome to the Duolingo first quarter 2022 earnings call. All participants will be in a listen-only mode. Should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there'll be an opportunity to ask questions. In consideration of time, please limit yourself to one question and one follow-up question. If you have further questions, you may re-enter the question queue. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Debbie Belevan, Head of Investor Relations. Please go ahead.
Thank you, operator, and welcome to Duolingo's first quarter 2022 earnings call. Today, after market close, we released a shareholder letter with our Q1 results and commentary, which you can find on our IR website at investors.duolingo.com. Today's call will be led by Luis von Ahn, our Co-Founder and CEO, Matt Skaruppa, our CFO, and Bob Meese, our Chief Business Officer. We'll begin with some brief remarks before opening the call to Q&A. Just to remind everyone, during this call, we'll make forward-looking statements regarding future events and our financial performance, which are subject to material risks and uncertainties that could cause actual results to differ materially. Some of these risks have been set forth in the risk factors of our periodic reports filed with the SEC.
These forward-looking statements are based on assumptions that we believe to be reasonable as of today, and we undertake no obligation to update these statements as a result of new information or future events. Additionally, we will present both GAAP and non-GAAP financial measures on today's call. These non-GAAP measures are not intended to be considered in isolation or as a substitute for or superior to our GAAP results, and we encourage you to consider all measures when analyzing our performance. With that, I'll turn the call over to Luis.
Thank you, Debbie, and welcome everyone. As usual, I want to kick off the call by reminding you of our mission, which is to develop the best education in the world and make it universally available. We work to achieve this mission by continually innovating and improving our products so that they are fun and effective. Now onto our first quarter results. Since our shareholder letter contains an in-depth discussion of this quarter's performance, Matt and I will provide some brief remarks and then get right into Q&A. Q1 2022 was our best quarter yet. We achieved new highs on nearly every metric. In fact, we surpassed our own performance expectations, which led us to raise our full year guidance. We are now projecting full year bookings growth well above 30% and also expect to be profitable for the year on an adjusted EBITDA basis.
The reason behind this stellar performance is clear: our product-focused strategy is working. The thousands of A/B tests that we run to make our products better are materializing in the form of stronger word-of-mouth user growth, stronger paying subscriber conversion rates, and higher overall retention. Our user growth accelerated from the previous quarter. We converted a record number of new paid subscribers, and we retained more of our previous subscribers. All of this resulted in total bookings growth of 55% this quarter compared to Q1 of last year. Now Matt will discuss our updated outlook for 2022.
Thank you, Luis. As Luis just highlighted, we had a tremendous quarter. Because of that, we are announcing that we are raising our full year guidance. For Q2 2022, we are guiding to $86 million-$89 million in total bookings, $84 million-$87 million in revenue, and an adjusted EBITDA of -$4 million to -$1 million. For the full year 2022, we are increasing our guidance to $388 million-$397 million in total bookings, $349 million-$358 million in revenue, and an adjusted EBITDA of 0 to +$3 million. Our full year bookings guidance reflects 32%-35% year-over-year growth, up from the 26%-30% year-over-year growth we guided to on our last earnings call.
In terms of our Q2 guidance, I'd like to point out that this is seasonally our softest quarter in terms of absolute bookings because we don't have our New Year's promotion or other big marketing events as we do in Q1, Q3, and Q4. We plan to continue managing the business with strong cost and capital discipline. For the full year, we expect to be profitable on an adjusted EBITDA basis, even while we continue to invest in R&D as we have done historically. We expect that non-GAAP R&D as a percentage of revenue should be roughly flat compared to last year.
While we expect to continue to get leverage in non-GAAP sales and marketing through more efficient spend, we will see some deleveraging in non-GAAP G&A, primarily driven by our expanded office footprint and the fact that 2022 is our first full year as a public company. Now I'll turn it back to Luis.
Thank you, Matt. Before going to Q&A, I'd like to take this opportunity to thank our entire team for their dedication to delivering on our mission. I'd like to thank our learners who spread the word of our products to their friends and family, and I'd like to thank you, our shareholders, for your support. We look forward to sharing more with you in the coming quarters. Now we would be happy to take your questions.
We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speaker phone, please pick up the handset before pressing the keys. To withdraw your question, please press star then two. Please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question queue. At this time, we will now pause momentarily to assemble our rosters. Your first question comes from Eric Sheridan from Goldman Sachs. Please go ahead.
Thanks for taking the question. Maybe staying focused on the investment commentary in your opening remarks, can you remind us some of the key priorities on the product side that you're investing against in 2022 and how we should be thinking about that product roadmap beyond just the next 12 months but over the next couple of years? Thanks so much.
Thank you for the question, Eric. Can you hear me okay? All right. I will assume you can. Thank you for the question. The most important thing to understand is that we're gonna be investing the majority of our resources on our language learning app. We think language learning is a massive opportunity, I mean, it's about $60 billion market, which is mostly shifting online, and we are the largest player online. We're gonna be investing mostly in our language learning app. There, you know, we run metrics. That's kind of the main thing for the next couple of years.
Also, as we said in the shareholder letter, you know, most of the changes that we make are, you know, relatively small changes, but we are working on a pretty large change that is going to be live in the next, you know, few months, which is a redesign of the home screen of the app. Hello?
Thank you.
Operator, can you hear us?
Pardon. Sorry.
Operator, can you hear us?
Yep, we can hear you. Your next question comes from Justin Patterson from KeyBanc. Please go ahead.
Great. Thank you. Perhaps for Luis and Matt can tack on to this. As we think about the potential impact to users and monetization from Super Duolingo and the new home screen versus past changes to the app like Hearts, and then I have one follow-up.
Sorry, Justin, can you hear me okay?
Yeah, I can hear you, although you did cut out a little bit in your response to Eric.
Okay. Hopefully, I mean, I think we're having a little bit of phone trouble, but hopefully you know, if I cut out, you can just ask again. Okay. You know, we're making some pretty big changes. I mean, the redesign of the home screen of the app, there's also Super Duolingo. You know, in terms of Super Duolingo, we don't think that it by itself is going to have a pretty major impact on metrics. Super Duolingo, the main reason we're doing the redesign of what our you know our subscription product looks like, is because we think it really fits in a lot more with our kind of gamified brand.
In terms of the redesign of the home screen of the app, we do think that's gonna really set us up for pretty big improvements in our metrics, mainly in terms of engagement and teaching better. Those are two things that we're gonna be looking for. I should say also, for the redesign of the home screen, you know, we run thousands of A/B tests. We've done some pretty major redesigns, you know, roughly every three or four years. We have experience doing this type of redesign. There's a couple of things to say there. The first one is, we're gonna, you know, we're gonna really be looking at our metrics to make sure that everything increases when we launch it.
By the time we launch the redesign, we will have a lot of confidence that the metrics will have increased. You know, one thing that I should kind of mention to people is that people don't like change, users don't like change, and this is a pretty major change to the home screen of the app. Even though we know, you know, once we launch it, we'll know that our metrics are positive, you know, we may see some negative sentiment here and there, but that's something that we're prepared for. That's, you know, that's something else. These are the two major changes we talked about in the shareholder letter.
Okay, perfect. For my follow-up, I just wanted to hit on social features. It sounds like you're having some success there, even helping users find love. I guess you could probably spin that as a Duolingo love language app down the road. But I'm curious if you could tell us how those social features are benefiting the KPIs, whether it's daily engagement or just, you know, better conversion over time, less churn on the app? Thank you.
Yeah. The social features, you know, the beautiful thing about social features is that they help every single metric. Really what they do is they get users to come back more often because their friends who are on Duolingo contact them on Duolingo, so they get users to come back more often. They get users to spend more time on the app. They increase user retention. And because people spend more time on the app, they also learn more and also subscribe more, you know, and actually pay us more. The social metrics really increase everything, and this is why we're investing in them.
Great. Thank you.
Thank you. Your next question comes from Mario Lu from Barclays. Please go ahead.
Great. Thanks for taking the question. The first one's on the strong bookings number this quarter. I believe you came in, you know, 9 points above your guidance at the midpoint. Just curious if you could, you know, provide more color in terms of what led to that outperformance? You guys mentioned the New Year's campaign, but you know, anything else to kind of point to that led to this? Thanks.
Yeah, great question, Mario. Our outperformance really is the result of just hundreds of A/B tests that we've been running. I mean, thousands actually of A/B tests that we've been running over the last, you know, couple of years, and it's just a compounding effect. I mean, if you look at the outperformance on revenue, that comes from basically increased users, also increased conversion to paying subscribers, and also increased retention of paying subscribers. Basically all our KPIs are up, and it really is just the result of compounding effects from just a ton. We had a good New Year's campaign, but in addition to that, you know, the months after that, it's also continued outperforming.
Great. Thanks, Luis. Just follow up on the full year guide that you guys raised. I guess how should we think about that raise in the context of the Q1 first quarter beat? Any embedded impact from FX or impact from Russia that you guys can call out?
Yeah. Yeah, thanks. I'm happy to answer that. Obviously the full year guide takes into account the results of Q1 actuals. The outperformance that Luis is talking about is really broad-based, as we've mentioned. It's not just any one thing in the business. It's improved user growth, conversion and retention. The guide takes into account all of those things. Now, I just do wanna mention that, you know, the world is obviously an uncertain place, and we're obviously paying very close attention to what's going on with the war you mentioned in Ukraine, inflation, interest rates and all of those things. We've taken a prudent approach to the guide for the rest of the year, just knowing that there is a lot of uncertainty out there.
Got it. Thanks, Matt.
Thank you.
Operator, are you there? Can anybody hear us?
Hi, everybody. I think you can all still hear us. It seems like the operator essentially disappeared. We are trying to figure out what to do with the operator for now. Sorry about that. This is Luis again. I think we just lost the operator. Tell some jokes. I'm kidding.
Excuse me, everyone. Give me one moment. We'll go ahead and proceed with Q&A here. It looks like we currently still have Mario Lu within the question queue.
Mario, can you hear us?
Mr. Lu?
Yeah, I can hear you guys. I think, I'm good for now.
Okay.
I'll just jump back in the queue.
Oh, okay. I do apologize, everyone. Looks like Luis is experiencing technical difficulties. Mr. Lu, we'll then remove you from the queue, sir. Appreciate it. Next, we will take Ralph Schackart of William Blair.
Thanks for taking the question, but Luis, if you have a joke first that you wanted to say, feel free.
Oh, I got many, but let's do this.
Got it. Thanks. Just in terms of subscription revenue growth in the shareholder letter, obviously you talked about new and renewing paid users. Maybe just kinda zeroing in on the renewing paid users. Did you change anything maybe on the testing side or product side? Just kinda curious how you're bringing back previous subscribers? Then I have a follow-up.
Yeah. I mean, we're, you know, always running A/B tests to try to, you know, continue increasing our number of subscribers. One of the main things that we have been doing to increase renewal rates is increasing the fraction of people that get into the Family Plan. The Family Plan is really good for retention because if you think about it, you know, if you have a Family Plan and you're using Duolingo, and also your significant other is using Duolingo, and also your, you know, your child is using Duolingo, as long as anybody's still using it, you're gonna continue paying. That's something that we've been, you know. The fraction of people that are on the Family Plan keeps going up.
It's in fact doubled since the beginning of the year, and that's really helped us with renewal rates. Other than that, we just continue making the app more and more engaging, and that just gets more and more people to subscribe and stay subscribed.
Great. Maybe a follow-up. Just, you know, as travel continues to return, just curious, you know, how is that impacting engagement and user and subscriber growth? Is that sort of a, you know, primary use case? Just kinda curious how that's impacting, the quarter and the sub base?
You know, travel is one of the many use cases for Duolingo. You know, it's not the primary use case, and it really, of course, depends on the geography. In some places a little bigger than others. You know, it's a minority use case. You know, we do see it. You know, it's not something that we're keeping an eye on in terms of having a major impact on. You know, we know people are traveling more and we do see it, but I just don't think that's had a major impact on our numbers.
Okay. Thanks, Luis.
Next we have Andrew Boone of JMP Securities.
Hi. Thanks for taking my questions. To start, can we have an update on local pricing? Just the testing that you were doing around, I think it was four countries. Secondly, in the letter you talked about expanding the language learning market. Can you talk about just given the fact that we just saw users kind of accelerate through one Q, how are you going about expanding the top of the funnel to just be more inclusive and bring more users into Duolingo? Thanks so much.
Yeah, great question. Let me first talk about expanding the language learning market. I mean, this is something that we've noticed in many of our markets. Actually, in the United States, when we asked our users, approximately 80% of our users in the United States were not in the language learning market before Duolingo. They were not learning a language before us. In certain countries, we really are just expanding the market. I think the reason that happens is we have a really iconic brand that, you know, a lot of people talk about, and it's also, it's just really easy to learn with Duolingo, and people tell that to each other. I mean, the main way in which we grow is through word of mouth.
You know, the things that people say to each other are just like, "Oh, have you tried Duolingo? It's really easy." I think that's basically how we're expanding the market. That was one question. What was the other question?
Regional pricing.
Oh, regional pricing. Yes. Regional pricing question. Yes. With regional pricing, we continue making progress. We are changing prices in more and more countries. By the way, just for reference, we talked about regional pricing during the IPO. Before the IPO, we really just had one price in every single country. We understand that is not optimal. Over the last few months, we have been changing the prices in countries. In the majority of countries, that means reducing the price, because the price that we had made a lot of sense for the United States, but the United States is kind of one of the wealthier countries in the world. In the majority of countries, we've been, you know, testing reducing prices, and that's been happening.
It, you know, is having an impact. The thing that I really wanna emphasize about regional pricing is it's just one of literally dozens of levers that we have. It is having an impact, but it's not a massive impact. Like, it's not like, oh, because the price is cheaper in some countries, you know, we're suddenly doubling our revenue or anything like that. It's a modest impact. The reason it's a modest impact is because in most of these countries that we're changing the price, these are countries where also digital subscriptions are not very mature. Now the price makes sense, but we still probably, you know, some time has to pass for people to really, you know, become used to digital subscription.
The way we see it with the regional pricing is it's something that it's a necessary condition to really increase our penetration of subscribers in these countries, but not a sufficient condition.
Thank you.
The next question we have will come from Mark Mahaney of Evercore ISI.
Okay, thanks. Two questions. You had this record number of, you know, MAUs or new users. Could you provide a little bit more? I understand all the A/B testing that, you know, helped convert them and help retain them, but could you just talk about how you brought them in, you know, in the first place and maybe more color, was it particular markets? Were you starting to really break through in markets like India or something like that? Just more color on where this, you know, record number of new users came from. Thank you.
Yeah. Hi, Mark. Yeah. Okay. The first thing to say is that we're growing in every single region. We are growing a little faster in certain regions. Asia in particular, and India, of course, is one of our fastest-growing countries. But we're also growing pretty fast in the United States. You know, we're growing in pretty much every region. You know, you ask how they came in. The vast majority of our users come in through word of mouth, and that's how they're coming in. Historically, that's been the case for Duolingo. It's organic growth. We have had some marketing campaigns that have been pretty efficient. In particular, in Asian countries, we have found that influencers, paid influencers really work.
It's not like we've spent a ton of money on that, but that has been really good for us. The other thing that has been really good for us in bringing new users is our use of social media. In particular, our TikTok has been at least for English-speaking countries like the U.S. and the U.K., our TikTok has been pretty good at getting the word out. Still, the vast majority of our growth comes from word of mouth.
Okay. You know, to date, you've, you know, just kinda state the obvious question, you've been a language, you know, learning app and, you know, a really interesting one. You know, your goal here is much broader than that when you're talking about education. Just talk about the timeline and let's set some expectations. Remind us of when math is coming out, you know, the Duolingo math product. You know, there's obviously a lot more to education, just math and language. Just, you know, what else could we see, and when could we see it? Thank you.
Yeah, that's a great question, and it's true. Our ambitions are pretty large. I mean, we really do wanna do all of education. I do wanna say a couple of things. The first is the language learning market is humongous, and we are still, there's still a lot of runway there. We're just getting started in our monetization, and we're just getting started in penetrating the market. For the foreseeable future, you will see the majority of our growth, and certainly of our revenue, come from language learning. We are working on these other apps. We already launched Duolingo ABC, which is for literacy. We are going to have a public beta of our math app later this year, and that's going to happen.
You know, that's gonna grow from there. In terms of contributions to revenue, I don't think you should expect anything this year or even next year. You know, if there's any, it'll be minimal. The main reason for that is just our language learning product is growing so much that it's gonna take some time to catch up for that to become, you know, meaningful.
Okay, that makes sense. All right. Thank you very much, Luis.
Thank you, Mark.
Again, everyone, I do apologize for the technical delay earlier. As a reminder, if you'd like to participate in today's Q&A, please press star then one on your touchtone phone. Again, that's star then one. The next question we have comes from Arvind Ramnani of Piper.
Hi. Hey, thanks for taking my question. Yeah, I just wanted to ask, you know, when I look at some of the other sort of digital learning firms, you know, clearly very different business models, but many of them are facing various sort of headwinds. You know, it kind of looks like y'all haven't got any. You haven't got a memo on kind of the post-pandemic sort of slowdown. In fact, you're kind of seeing pretty good growth. Just wanted to get a sense of, you know, maybe from a high-level perspective, like, what is so unique about the model where you're not seeing any slowdown? Or should we expect a slowdown in the next two or three quarters?
We have no reason to believe there's gonna be a slowdown. In fact, our user growth numbers are accelerating for now. There's just a number of things. The first thing to say is that we really are not. You know, I think when you see a lot of particularly education things, they really were a COVID story. We are not. You know, if you look at our growth numbers, our user numbers, I mean, basically we had an organic growth rate before COVID. Then the early kind of lockdown around, you know, 2020 of March through May, we did see an increase again in demand. After that, we are back to the kind of pre-COVID growth rates.
I think, you know, just kind of, for us, COVID was just not what it was for some other companies. That's one thing. I think another thing that is important to say is we are mainly a product-driven company. If you look at a lot of, you know, education companies or many of these other companies, they spend a lot of their resources on marketing, et cetera. We spend the vast majority of our resources on just making a really excellent product that works through word of mouth. I think the results are just showing. I mean, basically, the compounding of thousands of A/B tests is making it so the product is just better and better.
Perfect.
Go ahead. I just wanna say one other thing.
No, go ahead.
Language learning is interesting. I mean, it is a huge market, and the fact that we're just, you know, we really are just getting started with this market, with not only the user growth, but also with monetization. I think we're just, you know, in a point of the curve that you just continue seeing growth.
Terrific. Just from a product perspective, you know, some of the other sort of like tangential like learning that's repetitive in nature, for example, math, is there like a timeline you'll have, you know, that you're able to share with or is kind of things like math, you know, not in the near future? Hello?
I'm sorry, Arvind. I couldn't hear you there.
Sorry. Can you hear me?
We can hear you now.
We can hear you now.
I was going to say with math, we should see, you know, we are going to release a public beta version of the Math app later this year, so it'll be there. One of the things that I wanted to emphasize again is just that, you should not expect any meaningful revenue contribution from the Math app or from these other things, mainly because our language learning is just growing so much that over the next few years, that's where the contribution is gonna come from, mainly.
Terrific. Thank you very much.
Thank you.
Next, we have a question from Nat Schindler of Bank of America.
Yeah. Hi, guys. I just wanted to follow up on that math comment. I can understand that you're not looking to monetize very quickly, but more, what are your thoughts? Most of your subscribers have not been children. They've been adults, adult users historically for Duolingo. People do language learning their whole life. I don't see a lot of people, and I'm an engineer and a geek, and I don't see a lot of people who sit and do math learning later in life. Is there a real market for adults paying for math learning?
That's a great question. I mean, so the first thing to say is, you know, these are new products. You know, we're gonna develop them. We're very bullish on math because we think this is something that pretty much everybody needs to learn. The majority of the people that are going to be using it are probably not going to be adults, although we think that there's some market for adults related to brain training. We think it's going to be mainly children. Now, the thing to say about that is you know, we have a lot of children users of Duolingo, and in addition to that, this is one of the reasons why we're so excited about our Family Plan.
You know, we're increasing the fraction of our subscribers that are in the Family Plan, and the idea is going to be to bundle the multiple learning products into this Family Plan. That's something that we think will be very successful.
Great. Thank you.
Well, at this time we're showing no further questions. I will then plan to conclude today's Q&A. At this time, I'd like to hand the conference back over to the management team for any closing remarks. Sir?
Just thank you. Thank you very much, everybody, for the great questions and, yeah, we look forward to speaking again next quarter. Sorry about the operator dropping off. They probably went and got addicted to Duolingo.
Okay.
Bye.
Thank you, everyone. We do thank you for your patience, and we thank you, sir, for your time today and to the rest of the management team. The conference call is now concluded. Again, we thank you all. Take care and have a wonderful day.