You can either use offline (SMS) codes or you can configure that it allows you to connect without duo if the system is offline.
How is SMS offline? If Duo isn't there, where is the SMS coming from?
Sorry for the late reply. You can basically set up to send yourself an SMS with codes that you can use offline I think. Actually, I am not quite sure if they would work offline. So I think you are right. Sorry.
The app still generates offline codes as a backup, iirc.