Good evening, everyone, and welcome to Duolingo's Second Quarter 2025 Earnings Webcast. Today, after market closed, we released this quarter's Shareholder Letter, a copy of which you can find on our IR website at investors.duolingo.com. On today's call, we have Luis von Ahn, our Co-Founder and CEO; and Matt Skaruppa, our CFO. They'll begin with some brief remarks before opening the call to questions. And please note, this event is being recorded and all attendees are in listen-only mode. Just a reminder, we'll make forward-looking statements regarding future events and financial performance, which are subject to material risks and uncertainties. Some of these risks have been set forth in the Risk Factors in our filings with the SEC. These forward-looking statements are based on assumptions that we believe to be reasonable as of today, and we have no obligation to update those statements as a result of new information or future events. Additionally, we'll 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, as a substitute for or superior to our GAAP results. And we encourage you to consider all measures when analyzing our results. And now I will turn it over to Luis.

Hi, everyone, and thanks for joining us today. We had another great quarter: record profitability, strong top line growth and solid performance across all subscription tiers. As a result, we're raising our full year guidance again, while still investing in both our core business and exciting new areas like Chess, Math and Music that we believe will drive long-term growth. All of this brings us one step closer to our mission, which is to develop the best education in the world and make it universally available. And now we'll take your questions.

We will now move to our question-and-answer session. Our first question comes from Nathan Feather with Morgan Stanley.

Congrats on the strong quarter. Two from my end. First, DAU growth was still really strong, but moderated a touch in 2Q. I guess can you break down the primary drivers behind that and how we should think about the shape of user growth kind of through the year and into the back half? And then I also want to touch on the Chinese market. Can you provide some color on what you're seeing in that region? Any recent product improvements that are resonating, and when we might see Video Call out there?

Thank you, Nathan, for your questions. In Q2, we achieved 40% year-over-year growth in daily active users, following a 60% growth in the same quarter last year. We've experienced significant growth over the years. Previously, we indicated that we expected our DAU growth to be between 40% and 45%. Although we typically do not provide guidance on DAU growth, we made an exception last time due to a strong performance in Q1, particularly from our dead Duo campaign, as well as a robust Q2 last year. Despite reaching 40%, which is slightly below our expectations, we feel confident about our performance. The lower figure was influenced by some comments I made regarding AI, which lacked proper context and led to some backlash on social media. To address this, we shifted our social media strategy to focus on more positive content, and that change has paid off, as our social media sentiment has improved significantly, though we are still avoiding overly edgy posts that tend to go viral. This impact was primarily observed in the United States, including Canada and similar regions, and mostly among younger audiences. We believe this issue is now behind us. Typically, we guide on DAU only when we anticipate major changes; however, we are not providing such guidance this time, indicating that we do not expect significant changes for the next quarter. Regarding China, we are very optimistic about our growth there, which is our fastest-growing market. We recently had a successful partnership with Luckin Coffee, where many of their stores featured Duolingo branding and drinks named after our brand, which greatly boosted our visibility. Our product is performing well in China, although we have not yet introduced Max due to regulatory constraints regarding the use of local LLMs. After selecting a local LLM, we require government approval to proceed, and we currently do not have that approval. I cannot provide a timeline for when we will launch Max, as that is not something I am aware of at this time.

Our next question comes from Alex Sklar from Raymond James.

I wanted to ask about the paid conversion. You spoke to an increase on the Super side and good traction on the Max side. Can you update us on where Max stands today? And any 1 or 2 changes that you put into place that drove that particular increase in conversion this quarter?

We are very pleased with the performance of Max and Super, both of which are showing significant growth. The proportion of subscribers to Max has increased from 5% a couple of quarters ago to 7% last quarter, and then to 8% in Q2. While the growth was slightly below our expectations, the reason for this is that Super has outperformed our projections. Max's slower growth is partly due to the challenges faced by beginner users with its main feature, Video Call, which is designed for conversation practice. For beginners, this feature can be difficult to navigate, especially since it is currently offered only in the target language. To address this, we plan to experiment with a bilingual conversation format, allowing English speakers learning Spanish to engage in both languages to make it easier. Additionally, we are enhancing the engagement of conversations. For example, Video Call now features Lily with different backgrounds that can serve as interesting conversation starters. Overall, we are implementing several improvements to enhance the main feature of Max.

Great color there. And maybe one follow-up, probably for you, Luis. But last quarter you kind of talked about testing taking payments directly, maybe bypassing the App Store, at least from tests. Can you just update us where those tests stand today and any early learnings so far?

Yes, we're testing it. There are a few points to mention regarding this. This is specifically for iPhones or iOS. Until the end of the year, we're able to offer a web purchase flow in the United States, allowing users to pay on a website instead of through Apple’s purchase system. This ruling does not apply in other countries, and we are unsure if it will remain in effect. We'll have more clarity towards the end of this year. Currently, our testing indicates that we can direct users to a web purchase flow with minimal loss in bookings, although there is some decline due to the increased friction of an external purchase method. However, this significantly boosts our profit since we avoid paying Apple’s 30% fee on first-time subscriptions. Instead, we only pay around 2% to other providers like Stripe. It's a positive change, although we haven’t fully implemented it for all users yet. You can expect to see us take that step. It's important to note that, due to GAAP, the financial impact of this change will not be very noticeable this year. Most of our sales are 12-month subscriptions, and we will need to amortize the revenue over those months. By the time we roll this out to all users, we will only have around three months of impact this year, so it won't be significant financially, but we're quite excited about it, especially if it continues beyond this year.

Thanks for the color. We'll be on the lookout.

Our next question comes from Ralph Schackart from William Blair.

Great. Two questions if I could. I assume you could hear me, Luis?

Yes, Ralph.

Just maybe first, Matt, just on looking at the MAUs, it looked like they declined sequentially. Was that related to the social campaign? And then maybe just a broader question, Luis. Typically, when you roll out new products like Math or Music, you sort of downplay them and say they're not going to really impact the business, at least historically, but you called it out in the Shareholder Letter. So I'm asking. You highlighted Chess as sort of contributing earlier. Maybe kind of speak to what you're seeing with this product versus the other products. And it seems like there's some excitement there. Could that contribute to the platform earlier perhaps than some of the other products?

Ralph, I'll start with MAU and just give my best Luis impression on MAU, which is, in general, we don't have a team focused on MAU growth. We have a team focused on DAU growth. Because language learning is a daily practice and so we're more focused on that metric. But as you said, MAU growth did come down. It was a set of factors. And if you look at the trend, I don't think that trend line was all that different than it was kind of in Q1 from Q4, et cetera. So we are not worried about MAU growth and that trend. And we think, if anything, it's following the DAU growth trend.

I should mention that when comparing Q1 and Q2, there will be a slight drop due to the successful dead Duo campaign in Q1. We are very enthusiastic about Math, Music, and Chess, particularly Chess, which we highlighted in the Shareholder Letter. It has seen significant growth in a short period. A year ago, we hadn't even begun developing our Chess project, and now it's available on iPhones and shows strong demand, having already outperformed Math and Music in that specific context. While we're thrilled about Chess, we are equally excited about Math and Music. We recently acquired a talented team in Music known for their impressive music games, which adds to our excitement. However, we want to be careful about generating high expectations among investors regarding the revenue these courses may yield. Currently, we're bundling everything under a single subscription without focusing on optimizing revenue for each subject. We believe this will significantly expand our Total Addressable Market, attracting more users to our product, but we don't have concrete revenue projections at this time. It will take a few years for these initiatives to have a meaningful impact on our revenue.

Our next question comes from Chris Kuntarich from UBS.

I wanted to ask Max about retention, specifically regarding your earlier larger cohorts that are approaching renewal. What key factors are contributing to churn, and how does this compare to the current state of Super churn?

Yes, I can jump in. It's still early to determine the key feature for Max, which is Video Call with Lily; that feature started to gain traction among most users only in the third or fourth quarter of last year. Therefore, we haven't analyzed those user groups yet. The early renewal indicators for Max appear promising, as we mentioned in the last call. When comparing it to Super, it's also too soon to make detailed comparisons because we haven't observed these cohorts yet. We'll have more insights in the third and fourth quarters. To summarize, we are focusing on optimizing the lifetime value for the platform, considering Super, Max, and the related questions about mix. Max has the highest lifetime value of all our subscription offerings due to its price point, and as Max increases its share of subscribers, our lifetime value continues to rise. We will provide more details on renewal rates as more data becomes available, but generally, we are pleased with Max's growth.

Got it. That's helpful. Just one follow-up on gross margin. Can you help us consider how the second half of the year might benefit from AI cost savings compared to any impact from the web-based checkout on gross margin?

Yes. I think I'll take the last one first, I think it's easiest. I don't think the web-based checkout will drive very much change in gross margin in the back half of the year. Just as Luis said, that's going to be an effect that takes time to feather in just given how the accounting works. So I don't think that will be a big driver. I think the drivers that we saw in Q2, which were we outperformed our expectations on gross margin because AI costs overall did come down; a driver of that, which was lower API calls, token costs, we've got a lot of data now from the first 2 quarters of the year that says that the trend we expected to see, which was lowering of those unit costs, coming down, we think that trend is likely to stay intact. And so that's reflected in the guide as we laid it out. I think the Q2 performance was also helped a little bit by ad pricing. That remains to be seen over the course of the year.

Our next question comes from Justin Patterson from KeyBanc.

Sorry that took a second. Right there with you, Luis.

I like that. I like that.

Yes, I wanted to mention Energy, as I found it intriguing that it has uniquely impacted three metrics. It's quite uncommon for a feature to achieve that. I would love to hear about some of the early insights from Energy and how you plan to develop it further over time. Additionally, if we look at the app now, there are about four different educational modalities featured. As you consider expanding into new areas, how do you ensure the consumer does not become confused or overwhelmed when launching new courses?

No. It makes sense.

Thank you for your questions; they are excellent. We are very excited about the concept of Energy. To provide some context, Energy introduces a new pacing mechanic for free users. Previously, we used a system called Hearts, where users began with five hearts and lost one for each mistake. If they ran out of hearts, they had to watch a rewarded video to gain more. Energy changes this by giving users a starting amount of 25 energy units, which they spend with each exercise, regardless of whether their answers are correct or incorrect. Unlike before, we no longer penalize users for mistakes; instead, if a user answers five questions correctly in a row, they receive a random reward of energy back. This shift essentially replaces a punitive system with a rewarding one. We’ve found that this change boosts revenue and bookings, increases daily active users, and enhances the time users spend in the app. We are pleased with the rollout of this feature, which we expect to complete for all free users by the end of the year, while it won’t impact paid users much. Regarding your question about our subject offerings, we currently teach Languages, Math, Music, and Chess. We are mindful of user experience and potential confusion as we consider adding more subjects in the future, although we aren't actively working on new ones at the moment. We recognize that many users learn multiple topics simultaneously, such as Italian and Chess, and we need to improve the experience for managing those transitions. While we aren’t seeing significant confusion right now, our primary goal is to make it easier for users to switch between subjects and reward them for exploring multiple areas of learning.

Our next question comes from Wyatt Swanson from D.A. Davidson.

I just have another quick one on the Energy system. I realize that you're seeing positive changes in DAUs, time spent, subscriber conversion and all that. But I've just observed some feedback from users on social media, Reddit, stuff of that sort, and they don't seem to really like the change. Have you seen any negative impacts to any cohorts or demographics or anything like that as a result of that switch?

Yes, we anticipated this outcome. Whenever we make a significant change to Duolingo, there are always some users who resist the transition. Duolingo is designed to encourage daily habits, and people generally prefer consistency in their routines. However, we also want to keep improving the app, which can lead to some resistance to change. We experienced similar backlash two years ago when we revamped our home screen from a tree structure to a linear path. Despite the negative feedback, our performance metrics indicated that the change was beneficial. That previous shift was aimed at simplifying the app rather than increasing revenue. In this instance, our metrics are strong, showing improvements in daily active users, revenue, and time spent learning. While we anticipated that some users might not favor the change, it's important to note that a specific group of users who had become adept at using the app without making many mistakes is particularly affected. These users could engage with the app extensively without paying, but now, under the new Energy system, they have a limit on lessons, which has led to their complaints.

Got it. Okay. That makes sense. And then I just had another quick one on active users. It looks like the DAU-to-MAU ratio improved pretty substantially sequentially and we saw that step-down in MAU growth. Was that driven by the MAU step-down, or is it DAUs getting more engaged? Could you kind of just walk us through what happened there?

Yes, it's probably a little bit of both. If you look at our DAU-to-MAU trend, that ratio has been increasing almost every quarter for the last several years. A few years ago, it was 20%, and now it's around 37%. We appreciate this growth because the healthiest consumer products tend to have high DAU-to-MAU ratios. In this particular quarter, we improved our retention of DAUs, which positively impacted the DAU-to-MAU ratio. Additionally, MAUs decreased slightly compared to the previous quarter. This decline is largely due to the significant campaign we had in Q1 that inflated MAUs, attracting users who may not have been very committed. Now that we have moved past that effect, the DAU-to-MAU ratio has improved.

Yes. And Wyatt, just to put numbers to that, I was looking it up for Ralph's question on the MAU trends, and Q1 went up by about 1.5 points on year-over-year growth rate versus Q4 for MAU growth, and then went down from there to the 24% in Q2. What Luis is saying is that up was higher than it otherwise would have been. And so that otherwise trend probably looks more normalized. So I think that is part of the math.

Our next question comes from Ryan MacDonald from Needham & Company.

Congratulations on a strong quarter. To begin with, Luis, I understand that one of the initial objectives with Max and Video Call was to attract English learners to the platform. As you observe the development of Video Call and Max over the past year, are you noticing an increase in non-English speakers or English learners joining the platform? Or is it primarily upgrades from the existing user base?

Yes. We're definitely seeing growth in English learners that is outpacing the growth overall of learners of other languages in particular. So we're very happy with that. We're also seeing the case that people who are learning English are using Video Call more. Also intermediate learners are using Video Call more, and those are typically English learners. And also in Asia, we're seeing a pickup of not only using Video Call more, but also a slightly higher propensity to buy Max when compared to the rest of the world because of Video Call. So we're very happy with the early signals. I mean I should say, we're still early in this, but I mean, so far, we're very happy with what we're seeing. And it's exactly what we expected.

And maybe to follow up on sort of the DAU commentary and sort of the slowdown with the AI comments. One, is there a potential impact where if this goes beyond DAU growth slowdown into actual churn of subscribers and sort of any concerns about sort of a knock-on effect of that as we get to the end of the year? And Luis, not trying to get you in trouble on social media again, but does this change your view in terms of the rate of internal adoption of AI within the company?

On the advice of counsel, I won't say anything too specific, but I will joke about it. To start with, we performed well this quarter, with bookings exceeding expectations significantly. We maintain our guidance, and we don’t think these factors will materially influence our financial metrics. However, our forecast includes some positive developments like strong performance from Super, as well as positives from Energy, ads, and in-app purchases. On the downside, Max is not growing as quickly as we had anticipated. Regarding the Duolingo English Test, we believe the primary users are international students applying to universities in the U.S. and the U.K., and due to current macro trends, there are fewer applicants internationally. This has led to lower than expected performance for the test. Additionally, our social media presence isn't as robust at the moment; we have regained some positive sentiment but are being cautious. However, in the coming weeks or months, we plan to become more adventurous with our posts, which could benefit bookings. Everything is reflected in our guidance.

Yes. Ryan, I would just round that out for Luis, to kind of remind everyone that the impact of what you're asking about was really concentrated in the U.S. And the U.S., we talk about this on almost every earnings call, how the U.S. grows slower than the average because the rest of the world grows above the average DAU growth rate. And then the U.S. growth rate decelerated a bit over the course of the quarter. And now we think that we're past that and it's stable. And once we go back on social media in an edgy way, we expect things to go back. All of that does have an impact, as Luis said, on the guide, and that's all in there. I think I would just point out that we beat by 9% on bookings. A couple of points of that is FX, so that's just if you mark that down. A couple of points of it was ads. My point is that when you're not doing edgy things on social media, the chance for a viral breakout hit, like a dead Duo, goes down. So the chance for like a real surprise to the upside also goes down. So that beat should not be carried forward as an expectation.

Our next question comes from Ross Sandler from Barclays.

We've observed significant improvements in model capabilities and reduced latency from many AI companies. As these enhancements occur, how does this influence your thoughts on evolving your service to leverage these advancements? Additionally, it seems that the Video Call feature in Max is experiencing increased engagement. Are there any efforts being made behind the scenes to enhance the interaction within the Video Call to improve the overall experience and encourage greater adoption of Max? Could you elaborate on that?

Yes, AI models are improving, which is beneficial in some areas while having limited impact in others, depending on the use case. We have several use cases, with one of the largest being content generation. Enhancements in models or speed don't significantly benefit our language learning content since it's already quite effective. For generating Math content, however, improvements in models are advantageous because last year, the models struggled with math, but now they perform well, enabling us to create more Math content. Regarding Video Call, improvements in latency are beneficial, and whenever a new model is released, the previous model's price typically decreases, which also helps us. Although we may not use the latest model, lower prices still aid our operations. We're working on various ways to make the Video Call experience more engaging, such as fine-tuning our own models. Users may not notice significant visual changes, but the flow of conversations will improve and adapt better to individual levels. We're seeing continuous changes on a weekly basis. Initially, we lacked a specific metric for Video Call optimization, but now we focus on the average number of words spoken per Max subscriber, which effectively encourages users to speak more. Since we began optimizing for this metric, the quality of our Video Calls has notably improved, as the models are learning to engage users more effectively by asking relevant and open-ended questions. I'm very pleased with the progress we are making.

Our next question comes from Shweta Khajuria from Wolfe Research.

I have a follow-up to the previous question. How do you assess the product experience for voice on Duolingo compared to other AI-based voice translation services? I've noticed some feedback on platforms like Reddit indicating it might be a bit slower. What is your perspective on this, and is it a fair comparison? Additionally, I know you don't typically report on downloads, but have you observed any specific trends in the U.S. or internationally regarding how your ad downloads are performing?

I'm not entirely sure I understand your question. There are translation apps that are really good for voice-to-voice translation. We do teaching, and we are confident in our offering with Video Call. The most important aspect is that it is engaging, and we feel positive about that. Regarding downloads, I honestly don't have that information. I don't keep track of it, and I'm not sure if Matt does either.

No. I was just thinking, shoot, I'm sorry, I don't actually know the trend in downloads.

That tells you how much we look at this.

Well, as you may know, intra-quarter there was some growing fear around engagement, not only around DAUs and MAUs, but also downloads. And so if that's not something that you care about, that's fine. And so if I could do a quick follow-up on DAUs. Anything in particular that you saw across geographies on engagement? So how did U.S. trend versus certain other geographies on engagement?

Yes. Our daily active users are growing significantly at 40% year-over-year, which follows a prior year of 60% growth. We're pleased with this increase, although growth rates vary by country, with some experiencing faster growth than others. The U.S. has been lagging behind our overall average for a few quarters and is seeing a gradual slowdown in year-over-year growth. We believe this is primarily because the U.S. market is distinct from our other markets, as we historically have not invested in marketing there. In contrast, we actively invest in performance marketing and influencers in other sizable markets. Our reasoning has been that since we've historically experienced strong growth in the U.S., it's been more cost-effective to allocate our marketing budget elsewhere. We see this as a factor contributing to the slowdown. For comparison, we faced a similar situation in Mexico where we initially did not spend on marketing, relying solely on social media. DAU growth in Mexico also experienced a slowdown until we implemented a modest marketing strategy, including performance marketing and influencer partnerships. This led to significant growth in Mexico. We plan to adopt a similar approach in the U.S. by starting to allocate some funds for marketing there. While we won't be making substantial investments, we believe even small amounts can help us reach different audiences and improve growth.

Our next questions come from Bryan Smilek from JPMorgan.

Great. Luis, I guess just to start, a few quarters ago, you had mentioned that north of 2 million daily actives were intermediate or advanced English learners on the platform. Just curious what are the investments that's needed to drive deeper efficacy and just overall broader engagement and adoption of English learners on the platform, just given it is the vast majority of the TAM? And conversely, as well on monetization, Matt, how do you think about overall pricing of Max in some of these international markets as the cost of compute comes down and Max approaches potential gross margin accretion over time?

Yes, English learners are very important to us, and we've been focusing on them for a while. This includes not just advanced learners, but all English learners, especially beginners, which represents the largest total addressable market. We've been improving and expanding our content aimed at English learning, and we'll continue to do so. A significant part of our development efforts for learning features is dedicated to English, and we are happy to see that the number of learners has increased significantly beyond 2 million. I'll now let Matt discuss the pricing experiments.

Yes. Bryan, this is an excellent question because it allows us to discuss three key concepts: LTV optimization, the relative pricing of our subscription offerings, and the cost of compute. Starting with the last point, the cost of compute is decreasing, which we believe will continue to happen. This decline provides us with opportunities to experiment with the pricing of Max and to potentially add new Max features that require less compute into different tiers. Essentially, it offers us options. As these costs decrease, we plan to explore these options carefully, considering not only gross margin but ultimately LTV. I want to emphasize that our focus with Max, and particularly the Family Plan, is on optimizing LTV. The pricing of Max is influenced not only by the cost of compute and its impact on gross margin but also by how it compares to our other tiers. Luis mentioned that growth for Max has been slightly slower than anticipated, but this was largely balanced by faster-than-expected growth in Super experiments. This is interconnected; when consumers see the prices for Max and Super, it creates a relative value perception in their minds. I wanted to highlight these three concepts to point out that as compute costs decline, we gain additional options for experimentation, which is our specialty. Therefore, I anticipate running experiments on the relative pricing of Max and Super, as well as for the Family Plan. Additionally, if costs drop significantly, it could open up some compelling markets for us where Max isn't currently available, which is something to consider in the future.

Our next question comes from Mark Mahaney from Evercore.

All right. Let me throw 2 questions. One, Matt, you talked about the pricing on Super. And so just bring us up to date. I know you did some experimentation with Super pricing in the March quarter. I think you rolled it out globally. So just talk about what kind of response you saw to that. And then, Luis, I want to ask you a question, and maybe it's a little bit rude but I'll ask it to you anyway, which is, what have you drawn, what kind of lessons in terms of leadership lessons have you drawn from what happened in the controversy? Do you think the messaging was bad? The message was bad? Like how do you learn from that? And how do you improve going forward? And then I also want to ask you, at the same time, just address other concerns. Is the growth somehow a reflection of maturation or saturation of end markets? Or are there much greater competitive pressures in the market? So I'm throwing a lot by you, Luis, but I know you can answer them.

Yes. Those are good questions for Luis. I will answer the easy one, Mark, on pricing, which is we ran some pricing experiments earlier in the year. The way our pricing experiments work, like I just mentioned, is we're testing volume, price and trying to calculate and get a sense of LTV, although it's not perfect. And they were beneficial to bookings. They increased bookings. And that had a small impact. It wasn't a very large part of the movement you saw in Q2. And just to point out that our ARPU has gone up really nicely. I think Q2 ARPU, I think it was up around 5% or 6%. Most of that didn't come from this price change, right? It either came from FX or plan mix shift to higher-priced plans. And just again, I can't control FX, but what we can try to control is more Family Plan and Max over time. That will be the larger driver of ARPU, not price point increases. And now over to Luis for the other questions.

Yes. What I've learned as a leader is to be cautious about posting on LinkedIn. Joking aside, I didn't provide enough context about our post. Internally, when I sent that email to the company, there was no controversy. We've been committed to teaching people using computers since the inception of this company, long before LLMs existed, which inherently involves the use of AI. Our goal in using AI is to enhance teaching, expand our user base, and increase content availability. I didn't clarify that well, and people misinterpreted my message to mean that we wanted to eliminate all our employees, which is not the case. We value our employees. I've realized I need to be more careful about how I communicate externally compared to internally and provide sufficient context. The external perception can differ significantly from how we and other tech companies view things. Regarding maturation, we are not concerned. Our daily active user growth shows that some of our most penetrated markets are actually growing the fastest. We don't perceive ourselves as having reached a saturation point that would slow our growth universally. While some countries are growing faster than others, penetration isn't an issue for us. It's important to note that there are 2 billion people trying to learn a language globally, and we have around 130 million active users, so there's plenty of potential. We're also expanding into other subjects, such as Chess, Math, and Music, which have hundreds of millions of interested individuals. Thus, we believe we are far from reaching our full total addressable market.

Our next question comes from Andrew Boone from Citizens.

I wanted to go back to Max and talk about incrementality. Matt, you've kind of talked about it in a couple of ways in terms of helping for LTV. But how do we think about your ability to actually increase conversion given Max's offering, especially with more advanced learners and some of the testing that you guys have put out that shows it's efficacious?

Yes. That's right.

And then very specifically in terms of the guide and thinking through the numbers, ARPU has continued to go up. Matt, can you break that down a little bit further than just kind of FX and some of the stuff that you talked about? And then how do we think about that going forward in terms of relating it to the guide for the back half of the year?

Yes, I think we should consider that ARPU increased by about 6% this quarter. I estimate it to be around 5% or 6%, primarily due to changes in our plan mix. I don't believe this ARPU number will decrease; instead, I expect it to remain within that range, showing consistent low single-digit growth. We have good visibility into some past bookings that contribute to revenue, and we aim to enhance our mix over time. Regarding the guidance, foreign exchange has provided us with a favorable boost, as seen in the Q2 report, contributing significantly to our bookings. The majority of our guidance for the second half reflects the positive impact of foreign exchange. This is how we see foreign exchange influencing our guidance and, eventually, ARPU, though the effects on ARPU will unfold over four quarters.

Yes. Regarding Max and the various plans we have available, we now offer several options. There's the free plan, along with Super, Super Family, Max, and Max Family. We are continually assessing the most suitable plan to present to each individual at the right moment. Naturally, it's ideal for us when users choose Max Family, as that aligns best with our goals.

That's my favorite, everyone to do that.

Yes, that's Matt's favorite. But there are just some users for whom Super is probably a better thing, or Super Family or something. And we're always experimenting about what actually increases platform LTV. And that's the driving factor here.

Our next question comes from Curtis Nagle from Bank of America.

Awesome. Great. Matt, maybe just a few. First, just kind of going back to DAUs. I think the conclusion was you're not expecting a big change from 3Q to 2Q. Could you elaborate on this? Is this on a sequential basis, is it year-over-year, and in line with the 40% in 2Q? Just some clarification on that would be helpful. And then I have a question for Luis.

Yes. So I mean what we're basically telling you is that, in general, we try not and haven't historically guided to DAU. Last quarter we did because we had this amazing in Q1, 49% year-over-year.

51%, no?

Oh, yes. Around 50% DAU growth in Q1. And then we knew, because of that peak from dead Duo and the tough comps Luis already mentioned, that it was going to be in the 40% to 45% range. So we told you that because we didn't want anyone to get surprised. And so when it's a change of that scale and size and there's clear predictability about it, we want to tell you about it. When there's not something like that, we're not going to opine on the exact numbers. And so that's what Luis mentioned earlier. That you can take it as year-over-year growth rate sequentially, is that framework that we just laid out for you.

Yes. I meant year-over-year growth sequentially; we don't expect a big change.

Okay. That's helpful. Can you explain the switch from Energy to Hearts and the increase in revenue? Is this change being driven by a group of high-usage users who were previously not willing to pay and are now converting, or is there something else happening? Also, when will the Energy feature be fully implemented? I don’t have a clear picture on this, so I would appreciate your thoughts.

Yes. Internally, we believed that if someone uses Duolingo frequently and can afford to pay for services like Netflix, they should also pay for Duolingo. That's the principle behind Energy. Previously, there was a type of user who would pay regardless of other factors just to avoid ads. However, with the pacing mechanic, Energy tends to require payment if a user makes many mistakes, while the current model encourages users who frequently engage with the platform to contribute financially. Currently, we are rolling it out, and more than half of our daily active iOS users have access to Energy, while Android is still lagging behind at less than half. I can't provide an exact timeline for completion, but it should take a couple of months or so.

Our next question comes from Hanyi Cai from CITIC.

It's another strong quarter. Congratulations on the result. And I have this nice notebook, your collaboration with Luckin in China.

Nice. We love that collaboration. It was awesome.

Yes, it was awesome. And I do want to know more about the regional mix that you mentioned on prior questions, that it is you can see the fast-growing country right now is in China. But in China, you haven't rolled out Max. So is that part of the reason why you're thinking that the Max is behind your expectation, because you are expanding new users in a new market, lower penetrated market, and they are not Max users yet? And my second question is related to your investment, because as we can see, in the first half, you have an adjusted EBITDA ratio, if I'm calculating correctly, 29%. And your guidance for the full year is around like 28.5% to 29%. So I want to know more like what you're investing in the next half of the year and if it will be related to new content or it will be related to the new features in AI?

I'll address the first question and then Matt will take the EBITDA question. We are very pleased with our growth across Asia, which is our fastest-growing region. China surprised us positively this quarter with growth that exceeded our expectations, partly due to our partnership with Luckin. For those in the U.S., it may be difficult to convey how prevalent Luckin is in China. This growth was faster than anticipated, likely influenced by Super outpacing Max, although I believe that's a minor factor. The main takeaway is that we have been managing Super more effectively than Max.

Yes. And then on the investment side, again, we feel very happy about the fact that we're able to grow so quickly, expand margins and reinvest. In the back half of the year, we're doing what we think is the most important thing for the long-term growth of the business, which is investing back in the products, which is mainly we do a bunch of hiring. We have a bunch of new grads who'll start in Q3. We also are bringing on a group of people who we're really excited about who are going to help us grow our Music roadmap.

I'm extremely excited about that group of people, and I'm going to go have drinks with them very soon.

Yes. So we're doing those things to invest back in the product. That's a big chunk of it. And then as Luis already mentioned, we're going to spend a small amount of money incrementally on marketing in the back half of the year. I think the overall thing I would say is if you look at the trend in our guide around EBITDA margin by quarter, the guide lines up very closely with what happened last year in actuality in terms of the shape of that curve. So I think this is kind of more normal course as you'd expect. Last year Q2 was our highest quarterly EBITDA margin, and I think that's what we're implying is going to be the case this year.

I am showing no further questions. This concludes the Q&A section of the call. I would now like to turn the call back to Luis for closing remarks.

Thank you, everyone, for tuning in and thank you to all the analysts for their questions. And we'll see you next time.