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Anthropic, PBC
Notes to Consolidated Financial Statements
(Continued)

on  its  consolidated  balance  sheets  at  lease  commencement.  Where  the  Company’s  leases  do  not  provide  an 
implicit  rate,  the  Company  determines  its  incremental  borrowing  rate  based  on  the  information  available  at 
commencement date in determining the present value of lease payments. The determination of the incremental 
borrowing  rate  is  based  on  an  estimate  of  the  Company’s  unsecured  borrowing  rate,  adjusted  for  tenor  and 
collateralized security features. Lease liabilities are recognized at the present value of the future lease payments 
at the lease commencement date. ROU assets are measured based on the corresponding lease liability adjusted 
for (i) payments made to the lessor at or before the commencement date, (ii) initial direct costs incurred and 
(iii) tenant incentives received, incurred or payable under the lease. The Company does not assume renewals or 
early terminations of its leases unless it is reasonably certain to exercise these options at commencement.

Operating  lease  cost  is  recognized  on  a  straight-line  basis  over  the  lease  term.  Finance  lease  ROU  assets  are 
amortized on a straight-line basis over the shorter of the estimated useful life of the underlying asset or, where 
title  does  not  transfer  at  the  end  of  the  lease  term  and  the  Company  is  not  reasonably  certain  to  exercise  a 
purchase option, the lease term, and are recognized within operating expenses based on the nature of the leased 
asset. The interest component of a finance lease is recognized using the effective interest method over the lease 
term and is presented separately from the amortization of the related ROU asset.

Operating lease ROU assets and operating lease liabilities are presented separately on the consolidated balance 
sheets.  Finance  lease  ROU  assets  are  included  in  property  and  equipment,  net.  Finance  lease  liabilities  are 
included in accounts payable, accrued expenses, and other current liabilities, and in other noncurrent liabilities.

The Company’s lease agreements may contain lease and non-lease components. Non-lease components related 
to the asset being leased are not separated from the lease components and are accounted for as a single lease 
component for all existing classes of assets.

The  Company  made  an  accounting  policy  election  for  lease  agreements  with  a  term  of  12  months  or  less  and 
does  not  recognize  ROU  assets  and  lease  liabilities  in  respect  of  those  agreements.  Any  payments  related  to 
short-term leases are expensed as incurred.

Variable  lease  payments  are  expensed  as  incurred  and  are  mainly  composed  of  utilities,  common  area 
maintenance, and other operating expenses. 

Similar to other long-lived assets discussed above, management assesses ROU assets for impairment whenever 
events  or  changes  in  circumstances  indicate  that  the  carrying  amount  of  such  assets  may  not  be  recoverable. 
Finance  lease  ROU  assets  are  assessed  for  impairment  together  with  the  Company’s  other  property  and 
equipment. For leased assets, such circumstances would include the decision to enter into a sublease for which 
estimated cash flows do not fully cover the costs of the associated lease.

Revenue Recognition

The Company generates revenue from customers, including enterprises and prosumers, utilizing its intelligence 
service, which enables customers to submit text, documents, and other materials (“Prompts”), and receive AI-
generated results (“Results”) from its proprietary Claude model family. Prompts and Results are measured in 
the number of tokens consumed. The Company provides the intelligence service through its web, mobile, and 
desktop interfaces and APIs as well as through CSP marketplaces that distribute the intelligence service to the 
Company’s  customers.  The  intelligence  service  is  not  available  for  on-premise  download  or  hosting  by 
customers.

The  Company  accounts  for  revenue  under  ASC  606, Revenue  from  Contracts  with  Customers.  Revenue  is 
recognized based on the amount of consideration the Company expects to receive when the Company provides 
its  intelligence  service  to  customers.  Revenue  excludes  amounts  collected  on  behalf  of  third  parties,  such  as 
sales and indirect taxes, as well as estimated concessions, credits, and refunds. 

The Company’s intelligence service is provided on a consumption or subscription basis. Revenue is recognized 
when customers use the Company’s intelligence service, based on the quantity of tokens consumed. Intelligence 
service provided on a subscription basis is subject to usage limits that reset over short periods, which results in 
revenue being recognized ratably over the subscription period, which is generally 12 months or less. Payment 
terms vary by customer and sales channel but are generally less than 60 days. Subscription fees are generally 
prepaid. Certain enterprise contracts may include minimum spend commitments.

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