Q1 2022 Duolingo Inc Earnings Call
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Good day and welcome to the duo Vanguard first quarter 2022 earnings call.
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Please note. This event is being recorded I would now like to turn the conference over there.
That'd be Sullivan head of Investor Relations. Please go ahead.
Thank you operator, and welcome to you all angles first quarter 2022 earnings call.
After market close we released our shareholder letter with our Q1 results and commentary, which you can find on our IR website at investors stopped duolingo Dot com.
Today's call will be led by Louis spun on our cofounder and CEO of Masco robot, our CFO and Bob <unk>, Our Chief business Officer will begin with some brief remarks before opening the call to Q&A just.
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.
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 from a substitute for or superior to our GAAP results and we encourage you to consider all measures when analyzing our performance and 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 ineffective.
Now onto our first quarter results.
Since my shareholder letter contains an in depth discussion of this quarter's performance.
I will provide some brief remarks, and then get right into Q&A.
Q1 of 2022 was our best quarter yet.
We achieved new heights 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.
Thousands of AB 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 retain 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 and because of that we are announcing that we are raising our full year guidance.
For Q2, 2022, we are guiding to $86 million to $89 million in total bookings.
$84 million to $87 million in revenue.
And an adjusted EBITDA of negative four to negative $1 million.
For the full year 2022, we are increasing our guidance to 388 $397 million in total bookings.
$349 million to $358 million in revenue.
And then adjusted EBITDA of zero to positive $3 million.
Our full year bookings guidance reflects 32% to 35% year over year growth.
Up from the 26% to 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 nearest 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.
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.
We expect to continue to get leverage in non-GAAP sales and marketing through more efficient spend we will see some deleveraging and 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.
And now I'll turn it back to Louis.
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 and now we would be happy to take your questions.
Okay.
We will now begin the question and answer session to ask a question you May Press Star then one on your touch time fine.
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Please limit yourself to one question and one follow up if you have further questions. You may reenter. The question queue. At this time, we will now pause momentarily to assemble our roster.
Okay.
Your first question comes from Eric Sheridan from Goldman Sachs. Please go ahead.
Thanks for taking my question I'll, 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 youre investing again 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.
Alright, Thank you Kevin.
So thank you. Thank you for the question.
The most important thing.
To understand is that we're going to be investing the majority.
Our resources are language learning now.
We think language learning is a massive opportunity and it's about $50 billion market, which is mostly shipped them online and we are.
The largest player glare online so we're going to be investing mostly in our language learning app.
There were running.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Patrick.
And that's kind of the main thing for the next couple of years also like we said in the shareholder letter.
Most of the changes that we make are relatively small changes, but we are working on a pretty large change that is going to be live in the next few months I would just add redefined steam on the app.
Okay.
Hello.
Thank you operator.
Okay.
Kevin sorry.
Operator can you hear us.
We can hear you.
Okay.
Your next question comes from Justin Patterson from Cape Bank. Please go ahead.
Yes.
Okay, great. Thank you.
Perhaps for Luis and Matt can tack onto this how should we think about the potential impact to users and monetization from Super dwell lingo and the new home screen versus past changes to the app like like hard and then I have one follow up.
Sorry, Jonathan can you hear me okay.
Yes, 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 a comfortable but hopefully.
If I cut out but you can just ask you again.
Okay. So.
We're making some pretty big changes I mean, the biggest under the homescreen of the App.
There is also super duolingo.
In terms of Super Duolingo, we don't think that by itself is going to have a pretty major impact on metrics Super dwelling on the main reason.
Duane to redefine what are our subscription product looks like because we think it really fits in a lot more with our with our current game applied brand.
In terms of the refund of the home screen of the App. We do think that's going to really set us up pretty big improvements into our metric mainly in terms of engagement and teaching better.
So those are two things that were that were going to be looking for I should say also for the redesign of the home screen.
We've done we run we run thousands of <unk>, we've done some pretty major redefine roughly every three or four years. So so we have experience doing this type of redefine.
And there is a couple of things to say there the first one.
We're going to we're going to really be looking at our metrics to make sure that everything increases when we launch it by the time, we launched the redesign we will have a lot of confidence that the metrics will have increased.
One thing that I should kind of mentioned to people is that.
Don't like change users don't like change and this is a pretty major change to the homes.
So even though we know once we launch it we will know that our metrics are positive we may see some negative sentiment.
There, but that's something that we're prepared for.
But that.
Something else.
The major changes we've talked about it.
Shareholder letter.
Okay, Perfect and then 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 just a matter of a duo lingo language App down the road.
I'm curious if you are.
How those social features are benefiting the kpis, whether it's daily engagement or Jeff.
Better conversion over time less churn on the apps. Thank you.
Yes, the social features the beautiful thing about social features is that they help every single metric.
Really what they do is they get they get users to come back more often because their friends who are on dwell lingo contact them ongoing open to 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 describe more.
Yes.
And actually pay us more so so it really the social metrics really increase everything.
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 on the strong bookings number this quarter.
Believe you came at nine points above your guidance at the midpoint.
So just curious if you could.
<unk> more color in terms of.
What what led to that.
Outperformance.
As mentioned the new year's campaign, but.
Anything else to kind of point to.
That led to that.
Yes, great question Mario.
Result of our outperformance.
It really is our outperformance released the result, Jeff.
Hundreds of AB test that we've been running any thoughts conceptually maybe stuff that we've been running over the last couple of years and it's just a compounding effect I mean, if you look at the outperformance on on on revenue that comes from basically increased users also increased conversion to paying subscribers and also increase retention.
Thanks subscriber so basically all our kpis are up.
It's just the result of compounding effect.
We had a good new year's campaign, but in addition to that.
The months after that it's also continue outperforming.
Outperforming.
Great. Thanks, and then just to follow up on the full year guidance.
Yes.
I guess, how should we think about that raise in the context of the first quarter beat.
And then any embedded impact from FX or impact from Russia that you guys can call out.
Yes, yes, thanks, I'm happy to answer that so obviously the full year guide takes into account the results of Q1.
On actuals the.
Outperformance Luis is talking about is really broad based as we've mentioned so it's not just any one thing in the business.
User growth.
Conversion and retention.
Our guide takes into account.
All of those things now.
I mentioned that the <unk>.
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 and so we've.
We've taken a prudent approach to the guide for the rest of the year and just knowing that.
There is a lot of uncertainty out there.
Got it.
Sure.
Okay.
Thank you.
Operator are you there.
Sure.
Okay.
Okay.
Okay.
Can anybody hear us next year.
Okay.
Okay.
Yes.
Hi, everybody I think you can all still hear us.
It seems like the operator essentially disappear.
So we are trying to figure out what to do with the operator for now sorry about that because again I think we just lost the operator.
Yes.
You cannot go from Joseph.
Good evening.
Okay.
Okay.
Excuse me of the one new one moment, we will go ahead and proceed with.
Q&A here.
And that will take a we currently still have Mario low within the question queue.
Mario can you hear us.
Mr Lojack here.
I'm good.
Back in the queue.
Oh, Okay do apologize it looks like those experiencing technical difficulties are Mr level been removed from the queue. Sir I appreciate it.
Next we will take our Ralph <unk> of William Blair.
Yes.
Thanks for taking the question, but Luis if you are a joke first that you wanted to say I feel free.
Oh, I got many but let's let's do this.
Joe just in terms of subscription revenue growth in the shareholder letter, obviously, you talked about new and renewing our paid users maybe just kind of zeroing in on the renewing paid users did you change anything maybe on the testing side or product side, just kind of curious how you're bringing back previous subscribers and then I have a follow up.
Yes.
We're always running and maybe talk to the Chinese Ehealth continued increasing our number of subscribers one of the main things that we that we have been doing to increase renewal rates.
If cop increasing.
People that get into the family planning.
The final declining really good flow of retention because if you think about it.
Where if you're if you have a family plan and Youre using clothing. One also your significant alerted you to single anyone also youre Tayo, we do think going quite long of any antibody still using it youre going to continue paying.
So that's something that.
We've been in the.
The fraction of people that are on the family plan keeps going up its roots in fact doubled since the beginning of a year and Thats 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 save described.
Great maybe a follow up just travel continues to return just curious how is that impacting engagement and user and subscriber growth is that sort of a primary use case, just kind of curious how that's impacting the quarter in the sub base.
Thank you.
Travel is one of the many use cases for duolingo.
It's not the primary use case and it really of course depends on the geography and in some places a little bigger than other flexible.
It's a minority use case.
We do see yes.
But I don't think thats, having it's not something that we're keeping an eye on in terms of having a major impact on it.
The way, we know people are traveling more and we do see it but I just something thats had a major impact on our numbers.
Okay. Thanks Louise.
And 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 and then 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 accelerates for <unk>. 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 extending the language learning market. I mean, this is something that we can notice in many of our markets actually in the United States.
We asked our users approximately 80% of our users in the United States, we're not in the language learning market before duolingo. So they were not learning a language of Lux Im.
So in certain countries, we really are just expanding the market and I think the reason that happened. We just have 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 win was with growth as the word of mouth and the things that people say to each other I guess like or have you tried goulding it's really.
Davita.
And I think that that's basically how we're expanding the market.
Yes.
That was one question what was the other question regional price over to heightened retail pricing question, yes.
Yes, so with.
With retail pricing, we continue making progress we are not changing practice and one more country by the way.
And just for reference.
We've talked about regional pricing during the IPO and before the IPO, we really just have one price in every single country, we understand that is not optimal.
Over the last few months, we have been changing the practice in countries and the majority of countries that means reducing the price because the price that we had made a lot of sense for the United States of the United States is kind of one of the wealthier countries in the world. So the majority of countries would be testing.
Testing, reducing prices and that's been happening.
It is having an effect, but the thing that.
But I really want to emphasize about regional pricing is just one of literally dozens of levers that we have.
And that's having it is having an impact but it's not a massive impact like it's not like Boe because the prices cheaper in some countries.
Suddenly doubling our revenue or anything like that.
It's a modest impact on the reason, it's a modest impact is because in most of these countries that work that we're chasing the price. These are countries, where also digital subscriptions and not very mature. So now the price makes sense, but we still properly.
Sometime have to pass for for people to really become used additional subscription so that so the way we see it with the regional pricing is something that is.
At 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. So you had this record number of M. A user or new users could you provide a little bit my and I understand all the a b testing that helped convert them and can help retain them, but could you just talk about how you brought them in in.
In the first place in and maybe more color was it particular markets, where you're starting to really breakthrough in markets like India or something like that just more color on where the record number of new users came from thank you.
Yeah, Hi, Mark so yes, so okay.
First thing to say that we're growing in every single region.
We are growing a little faster in certain regions Asia in particular in India of course is one of our fastest growing country.
But we're.
We're also growing pretty fast in the United States. So we're growing in pretty much every region and 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 and historically that's been the case for dual language organic growth.
We have had some marketing campaigns that have been pretty efficient in particular in Asian countries. We have found that influencers.
It influences it really work.
It's not like we 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 and bringing new users with our use of social media in particular kicked off has been at least four for English speaking countries like the U S and the UK Arctic stock has been pretty good at getting the word out about the spill. The vast majority of our growth comes from word of mouth.
Okay.
In.
To date you have this kind of the state the obvious question you've been out in language learning App and a really interesting one.
And your goal here is much broader than that when you are talking about education. So just talk about the timeline and let's set some expectations remind us of when math is coming out.
The dual lingo math product and then there's obviously a lot more to education, just math and language. So.
Just what else should we what else could we see and when could we see it. Thank you.
Yes, that's a great question instituting our ambitions are a pretty large I mean, we really do want to do all of education I do want to say a couple of things. The first is the language learning market. Its humongous and we are still there's still a lot of runway. There. We're just getting started on monetization and we're just getting started and penetrate new Microsoft 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 army for their App, we already launched Duolingo ABC widget for legacy we are going to have a public data of our map App later this year and that's going to happen.
I mean, that's.
Is that not going to grow from there in terms of contribution to revenue.
I don't think you should expect anything this year or even next year.
And exert any it'll be minimal.
And the majority of the.
The main reason for that is just our language learning product is growing so much that exact take some time to catch up for that to become meaningful.
Okay that makes sense alright, thank you very much Luis.
Alright, Thank you Mark.
To give everyone a good progress for the technical delay earlier.
A reminder, if you'd like to participate in today's Q&A. Please press Star then one on the Touchtone phone again, that's star then one.
Next question, we have comes from Arvind Rahmani of Piper.
Okay.
Hi.
Thanks for taking my thinking.
Taking my question.
I just wanted to ask when I look at some of together.
So the digital learning firms tell a very different business models, but many of them are.
Facing various.
Set of headwinds.
And kind of looks like you all haven't got any a you haven't got a memo on kind of the post pandemic sort of slowdown in fact Europe .
Seeing pretty good growth.
Just wanted to get it ends up.
Maybe from a high level perspective, like what is unique about the model where you are.
Not seeing any any slowdown.
Or is it.
How should we expect a slowdown in the next two or three quarters.
So we have no reason to believe theres going to be a slowdown in fact, our user growth numbers are accelerating for now we just this is a number of things. The first thing to say that we really are not I think when you see a lot of it particularly education things. They really were a COVID-19 story, we are not.
If you look at our growth our growth numbers, our user numbers and basically we had an organic growth rate before COVID-19 than the early kind of locked down around 2020 of March through May and we did see an increase in demand, but after that we are back to the kind of pre COVID-19 growth rates. So I think I would just kind of.
For October it was just not one o'clock for some for some other companies Thats one thing I think another thing headed.
It's important to tell you, where we are mainly a product driven company and if you can.
Look at a lot of.
It's against the company for many of these other companies and a lot of their resources on marketing etcetera, we spend the vast majority of our resources, just making a really excellent product one that goes to word of mouth and I think the results are just showing them in India.
We had a compounding of thousands of AVX is catching up with our product which is better.
Perfect and then for hydro payments go.
Go ahead I just wanted to make one other way.
Additionally, we also just language learning is interfering it is a huge huge market.
And the fact that we just we really are just getting started with this market with not only with the unit growth, but also with monetization I think we're just.
And a point on the curve that Youll just you just continued to gain growth.
Yes.
Terrific and adjust from a product perspective.
Yeah.
Some of the other ancillary.
Not answer it sort of like <unk>.
Convention like learning.
Repetitive in nature for example, Matt is there like a timeline.
Have.
Did you able to share.
Are those kind of things like Matt.
Not not in the near future.
Okay.
Okay.
Okay.
Okay.
Hello.
Okay.
<unk> will contribute with more of you there.
Sorry can you hear me.
Well given the scenario Knoxville part.
Sorry continues to okay. So I would want space so with map.
We should we should see.
We're probably going to release not probably we are going to release a public beta version of the map App later this year. So it will be there, but one of the things that I wanted to emphasize again is just that.
You should not expect any meaningful revenue contribution from the map Apple from the other things mainly because our language learning is just growing so much that over the next few years, perhaps that's where the contribution of that come from mainly.
Sure.
Perfect. Thank you very much.
Thank you.
And 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 won't be youre, not looking to monetize very quickly.
But more what are your thoughts.
Most here.
Scriber <unk> have not been children there've been adults adult users historically for duolingo.
People do language learning their whole life.
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. So.
Is there a real market for adults pain for math warming.
That's a great question I mean for the first thing to say if.
This will be part of your new products.
Mark we're going to develop them. We are we're very bullish on the 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 is some market for adults are related to brain training, but we think it's going to be mainly children now the thing to say about that business.
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.
We are.
We're increasing fraction of our subscribers that are in the family plan and the idea is going to be to bundle the multiples learning products into this family planning and that's something that we think will be very successful.
Great. Thank you.
Yes.
Okay.
Well at this time, we're showing no further questions I will gladly 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.
Yes.
Just thank you. Thank you very much everybody for the great questions.
Yeah, we look forward to speaking again next quarter and sorry about the operator dropping off they probably one thing.
You've got a big they could duolingo.
Yes.
Okay.
You don't ever want to do thank you for your patience and thank you Sir for your job delay into the rest of the management team or the <unk>.
Conference call has now concluded again, we thank you all take care and have a wonderful day.
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