Trade Desk Inc

Previous wording

Changes in interest and foreign currency exchange rates, inflation and geopolitical developments have resulted, and may continue to result, in a global slowdown of economic activity, which may decrease demand for a broad variety of goods and services, including those provided by our clients, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time until economic activity normalizes. As a result of the current uncertainty in economic activity, we are unable to predict the size and duration of the impact on our revenue and our results of operations. The extent of the impact of these macroeconomic factors on our operational and financial performance will depend on a variety of factors, and the duration and extent of geopolitical and global economic disruption and their respective impacts on our clients, partners, industry and employees, all of which are uncertain at this time and cannot be accurately predicted. See “Item 1A. Risk Factors” in Part II. Other Information for further discussion of the adverse impacts of macroeconomic uncertainty on our business.

Current wording

Changes in foreign currency exchange rates, inflation and geopolitical developments have resulted, and may continue to result, in a global slowdown of economic activity, which may decrease demand for a broad variety of goods and services in various industries, including those provided by our clients, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time until economic activity normalizes. As a result of the current uncertainty in economic activity, we are unable to predict the size and duration of the impact on our revenue and our results of operations. The extent of the impact of these macroeconomic factors on our operational and financial performance will depend on a variety of factors, and the duration and extent of geopolitical and global economic disruption and their respective impacts on our clients, partners, industry and employees, all of which are uncertain at this time and cannot be accurately predicted. See “Item 1A. Risk Factors” in Part II. Other Information for further discussion of the adverse impacts of macroeconomic uncertainty on our business.

Previous wording

Results of Operations for the Three and Six Months Ended June 30, 2024 Compared with the Three and Six Months Ended June 30, 2023

Current wording

Results of Operations for the Three and Nine Months Ended September 30, 2024 Compared with the Three and Nine Months Ended September 30, 2023

Previous wording

Revenue increased by $120 million, or 26%, and $229 million, or 27%, for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, respectively. The increase was primarily due to higher gross spend in the current year on our platform, which was primarily driven by new clients and more campaigns executed by existing clients.

Current wording

Revenue increased by $135 million, or 27%, and $363 million, or 27%, for the three and nine months ended September 30, 2024, as compared to the three and nine months ended September 30, 2023, respectively. The increase was primarily due to higher gross spend in the current year on our platform, which was primarily driven by new clients, more campaigns executed by existing clients and higher spend per campaign.

Previous wording

Platform operations expense increased by $24 million, or 27%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The increase was primarily due to increases of $17 million in hosting costs and $6 million in personnel costs, which included a $2 million increase in stock-based compensation. The increase in hosting costs was primarily attributable to support costs related to the increased use of our platform by our clients, increased use of features by our technical teams in support of our platform and investment in new data centers to support the continued growth of our platform. The increase in personnel costs was primarily due to the increase in stock-based compensation driven by new equity awards, an increase in platform support by engineers, headcount growth and an increase in taxes on equity awards.

Current wording

Platform operations expense increased by $29 million, or 31%, for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The increase was primarily due to increases of $22 million in hosting costs and $6 million in personnel costs, which included a $2 million increase in stock-based compensation. The increase in hosting costs was primarily attributable to support costs related to the increased use of our platform by our clients, increased use of features by our technical teams in support of our platform and investment in new data centers to support the continued growth of our platform. The increase in personnel costs was primarily due to the increase in stock-based compensation driven by new equity awards, an increase in platform support by engineers and headcount growth.

Previous wording

Platform operations expense increased by $43 million, or 25%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The increase was primarily due to increases of $31 million in hosting costs and $10 million in personnel costs, which included a $4 million increase in stock-based compensation. The increase in hosting costs was primarily attributable to support costs related to the increased use of our platform by our clients, increased use of features by our technical teams in support of our platform and investment in new data centers to support the continued growth of our platform. The increase in personnel costs was primarily due to the increase in stock-based compensation driven by new equity awards, an increase in platform support by engineers, headcount growth, an increase in taxes on equity awards and an increase in travel and employee engagement costs, including in-person events.

Current wording

Platform operations expense increased by $72 million, or 27%, for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The increase was primarily due to increases of $53 million in hosting costs and $16 million in personnel costs, which included a $6 million increase in stock-based compensation. The increase in hosting costs was primarily attributable to support costs related to the increased use of our platform by our clients, increased use of features by our technical teams in support of our platform and investment in new data centers to support the continued growth of our platform. The increase in personnel costs was primarily due to the increase in stock-based compensation driven by new equity awards, an increase in platform support by engineers, headcount growth, an increase in taxes on equity awards and an increase in travel and employee engagement costs, including in-person events.

Previous wording

Sales and marketing expense increased by $22 million, or 20%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The increase was primarily due to an increase of $18 million in personnel costs, which included a $6 million increase in stock-based compensation, a $2 million increase in marketing costs and a $2 million increase in allocated facilities costs. The increase in personnel costs was primarily due to headcount growth to support our sales efforts and to continue to develop and maintain relationships with our clients; an increase in incentive compensation driven by gross spend growth; and an increase in travel costs. The increase in stock-based compensation was primarily due to new equity awards. The increase in marketing costs was primarily due to an increase in marketing campaigns, events, sponsorships and client engagement. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth as well as office support expenses.

Current wording

Sales and marketing expense increased by $28 million, or 25%, for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The increase was primarily due to increases of $21 million in personnel costs, which included a $4 million increase in stock-based compensation, $3 million in marketing costs and $3 million in allocated facilities costs. The increase in personnel costs was primarily due to headcount growth to support our sales efforts and to continue to develop and maintain relationships with our clients; an increase in incentive compensation driven by gross spend growth; and an increase in travel costs. The increase in stock-based compensation was primarily driven by new equity awards. The increase in marketing costs was primarily due to an increase in marketing campaigns, events, creatives and client engagement. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth as well as office support expenses.

Previous wording

Sales and marketing expense increased by $47 million, or 22%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The increase was primarily due to an increase of $39 million in personnel costs, which included a $12 million increase in stock-based compensation, a $4 million increase in marketing costs and a $4 million increase in allocated facilities costs. The increase in personnel costs was primarily due to headcount growth to support our sales efforts and to continue to develop and maintain relationships with our clients; an increase in incentive compensation driven by gross spend growth; and an increase in travel and employee engagement costs, including in-person events. The increase in stock-based compensation was primarily due to new equity awards. The increase in marketing costs was primarily due to an increase in marketing campaigns, events, sponsorships and client engagement. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth as well as office support expenses.

Current wording

Sales and marketing expense increased by $75 million, or 23%, for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The increase was primarily due to increases of $60 million in personnel costs, which included a $17 million increase in stock-based compensation, $8 million in marketing costs and $7 million in allocated facilities costs. The increase in personnel costs was primarily due to headcount growth to support our sales efforts and to continue to develop and maintain relationships with our clients; an increase in incentive compensation driven by gross spend growth; and an increase in travel and employee engagement costs, including in-person events. The increase in stock-based compensation was primarily driven by new equity awards. The increase in marketing costs was primarily due to an increase in marketing campaigns, events, creatives, sponsorships and client engagement. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth as well as office support expenses.

Previous wording

Technology and development expense increased by $12 million, or 12%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The increase was primarily due to an increase of $10 million in personnel costs, which included a $6 million increase in stock-based compensation, and a $1 million increase in allocated facilities costs. The increase in personnel costs was primarily attributable to the increase in stock-based compensation driven by new equity awards, headcount growth to maintain and support further development of our platform and an increase in taxes on equity awards. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth as well as office support expenses.

Current wording

Technology and development expense decreased by $0.1 million, or 0.1%, for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The decrease was primarily due to a $7 million decrease in stock-based compensation, offset by increases of $4 million in personnel costs and $2 million in allocated facilities costs. The decrease in stock-based compensation was primarily driven by the cancellation of unvested equity awards for our former Chief Technology Officer (“CTO”), which resulted in the recognition of $14 million in incremental stock-based compensation in the three months ended September 30, 2023, that did not recur in the three months ended September 30, 2024. This was partially offset by a $7 million increase in stock-based compensation primarily driven by new equity awards. The increase in personnel costs was primarily attributable to headcount growth to maintain and support further development of our platform. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth as well as office support expenses.

Previous wording

Technology and development expense increased by $26 million, or 13%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The increase was primarily due to an increase of $23 million in personnel costs, which included a $13 million increase in stock-based compensation, and a $2 million increase in allocated facilities costs. The increase in personnel costs was primarily attributable to the increase in stock-based compensation driven by new equity awards, headcount growth to maintain and support further development of our platform, an increase in taxes on equity awards and an increase in travel and employee engagement costs, including in-person events. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth as well as office support expenses.

Current wording

Technology and development expense increased by $26 million, or 8%, for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The increase was primarily due to increases of $20 million in personnel costs, which included a $6 million increase in stock-based compensation, and $4 million in allocated facilities costs. The increase in personnel costs was primarily attributable to headcount growth to maintain and support further development of our platform, an increase in taxes on equity awards and an increase in travel and employee engagement costs, including in-person events. The increase in stock-based compensation was due to a $20 million increase primarily driven by new equity awards. This was partially offset by the cancellation of unvested equity awards for our former CTO, which resulted in the recognition of $14 million in incremental stock-based compensation in the nine months ended September 30, 2023, that did not recur in the nine months ended September 30, 2024. The increase in allocated facilities costs was primarily driven by new leases for additional office space to support our future growth as well as office support expenses.

Previous wording

General and administrative expense increased by $9 million, or 7%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due to an increase of $8 million in personnel costs and an increase of $6 million in administrative costs, partially offset by a $5 million decrease in stock-based compensation. The increase in personnel costs was primarily attributable to increased headcount to support our growth, an increase in taxes on equity awards and an increase in travel costs. The increase in administrative costs was primarily driven by increases in external professional fees and local business taxes. The decrease in stock-based compensation was primarily driven by a $12 million decrease in expense related to the CEO Performance Option driven by the graded-vesting attribution method, under which more expense is recognized earlier in the option’s life, partially offset by a $7 million increase in expense related to new equity awards.

Current wording

General and administrative expense increased by $7 million, or 5%, for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, primarily due to increases of $9 million in personnel costs and $8 million in administrative costs, partially offset by a $10 million decrease in stock-based compensation. The increase in personnel costs was primarily attributable to increased headcount to support our growth, an increase in travel costs and an increase in taxes on equity awards. The increase in administrative costs was primarily driven by increases in external professional fees and local business taxes. The decrease in stock-based compensation was primarily due to an $18 million decrease related to the CEO Performance Option driven by the graded-vesting attribution method, under which more expense is recognized earlier in the option’s life, partially offset by an $8 million increase primarily driven by new equity awards.

Previous wording

General and administrative expense increased by $9 million, or 3%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, primarily due to increases of $17 million in personnel costs and $14 million in administrative costs, partially offset by a $23 million decrease in stock-based compensation. The increase in personnel costs was primarily attributable to increased headcount to support our growth, an increase in taxes on equity awards and an increase in travel and employee engagement costs, including in-person events. The increase in administrative costs was primarily driven by increases in external professional fees and local business taxes. The decrease in stock-based compensation was primarily driven by a $37 million decrease in expense related to the CEO Performance Option driven by the graded-vesting attribution method, under which more expense is recognized earlier in the option’s life, partially offset by a $14 million increase in expense related to new equity awards.

Current wording

General and administrative expense increased by $15 million, or 4%, for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, primarily due to increases of $26 million in personnel costs and $22 million in administrative costs, partially offset by a $33 million decrease in stock-based compensation. The increase in personnel costs was primarily attributable to increased headcount to support our growth, an increase in travel and employee engagement costs, including in-person events, and an increase in taxes on equity awards. The increase in administrative costs was primarily driven by increases in external professional fees and local business taxes. The decrease in stock-based compensation was primarily due to a $54 million decrease related to the CEO Performance Option driven by the graded-vesting attribution method, under which more expense is recognized earlier in the option’s life, partially offset by a $21 million increase primarily driven by new equity awards.

Previous wording

Total other income, net, decreased by $0.5 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The decrease was primarily due to foreign currency transaction losses, driven by changes in foreign currency exchange rates against the U.S. Dollar, offset by higher interest income on our cash and cash equivalents and short-term investments driven by rising interest rates as well as gains on foreign currency forwards.

Current wording

Total other income, net, decreased by $1 million for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The decrease was primarily due to losses on foreign currency forwards, driven by changes in foreign currency exchange rates against the U.S. Dollar, offset by foreign currency transaction gains and higher interest income on our cash and cash equivalents and short-term investments driven by rising portfolio interest rates and higher amounts invested.

Previous wording

Total other income, net, increased by $3 million for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The increase was primarily due to higher interest income on our cash and cash equivalents and short-term investments driven by rising interest rates as well as gains on foreign currency forwards, partially offset by foreign currency transaction losses, driven by changes in foreign currency exchange rates against the U.S. Dollar.

Current wording

Total other income, net, increased by $3 million for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The increase was primarily due to higher interest income on our cash and cash equivalents and short-term investments, driven by rising portfolio interest rates, and foreign currency transaction gains, driven by changes in foreign currency exchange rates against the U.S. Dollar, partially offset by losses on foreign currency forwards.

Previous wording

The U.S. federal statutory tax rate was 21% for the three and six months ended June 30, 2024 and 2023, respectively.

Current wording

The U.S. federal statutory tax rate was 21% for the three and nine months ended September 30, 2024 and 2023, respectively.

Previous wording

The provision for income taxes increased by $0.5 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The increase was primarily due to higher pre-tax profitability, offset by a lower impact attributable to nondeductible stock-based compensation and higher tax benefits associated with employee stock-based awards.

Current wording

The provision for income taxes increased by $15 million for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The increase was primarily due to higher pre-tax profitability, partially offset by a lower impact attributable to nondeductible stock-based compensation and higher tax benefits associated with employee stock-based awards.

Previous wording

The provision for income taxes increased by $34 million for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The increase was primarily due to higher pre-tax profitability coupled with a decrease in benefits associated with employee stock-based awards, partially offset by a lower impact attributable to nondeductible stock-based compensation.

Current wording

The provision for income taxes increased by $49 million for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The increase was primarily due to higher pre-tax profitability coupled with a decrease in benefits associated with employee stock-based awards, partially offset by a lower impact attributable to nondeductible stock-based compensation.

Previous wording

As of June 30, 2024, we had working capital of $2,004 million, which included $1,009 million in cash and cash equivalents, $64 million of which was held by our international subsidiaries, and $497 million in short-term investments in marketable securities. Additionally, we had $442 million available under our Amended Credit Facility (refer to the “Credit Facility” section below). For the six months ended June 30, 2024, we generated $267 million in cash flows from operating activities.

Current wording

As of September 30, 2024, we had working capital of $2,223 million, which included $1,221 million in cash and cash equivalents, $70 million of which was held by our international subsidiaries, and $510 million in short-term investments in marketable securities. Additionally, we had $442 million available under our Amended Credit Facility (refer to the “Credit Facility” section below). For the nine months ended September 30, 2024, we generated $540 million in cash flows from operating activities.

Previous wording

During the three months ended June 30, 2024, we did not repurchase any shares of our Class A common stock. During the six months ended June 30, 2024, we repurchased and subsequently retired 1.5 million shares of our Class A common stock for an aggregate repurchase amount of $125 million. The repurchase amounts included in the condensed consolidated statements of stockholders’ equity included immaterial amounts related to the 1% excise tax on share repurchases, net of share issuances, as a result of the Inflation Reduction Act of 2022 (“IRA”). As of June 30, 2024, $575 million remained available and authorized for repurchases.

Current wording

During the three months ended September 30, 2024, we repurchased and subsequently retired 0.5 million shares of our Class A common stock for an aggregate repurchase amount of $54 million. During the nine months ended September 30, 2024, we repurchased and subsequently retired 2 million shares of our Class A common stock for an aggregate repurchase amount of $179 million. The repurchase amounts included in the condensed consolidated statements of stockholders’ equity included immaterial amounts related to the 1% excise tax on share repurchases, net of share issuances, as a result of the Inflation Reduction Act of 2022 (“IRA”). As of September 30, 2024, $521 million remained available and authorized for repurchases.

Previous wording

For the six months ended June 30, 2024, cash provided by operating activities of $267 million resulted primarily from net income adjusted for noncash items of $419 million and a net decrease from our operating assets and liabilities of $152 million. The net decrease from our operating assets and liabilities was due to a $52 million increase in prepaid expenses and other assets, a $49 million increase in accounts receivable, a $27 million decrease in operating lease liabilities, a $13 million decrease in accounts payable and a $10 million decrease in accrued expenses and other liabilities. The increase in prepaid expenses and other assets was primarily due to cash paid for income taxes. The increase in accounts receivable was due to the timing and seasonality of cash receipts from clients and the growth of our business. The decrease in operating lease liabilities was due primarily to rent payments. The decrease in accounts payable was due to the timing and seasonality of payments to suppliers for the cost of advertising inventory, data and add-on features. The decrease in accrued expenses and other liabilities was primarily due to incentive compensation payments and a reduction of the liability related to the ESPP due to the purchase of shares in accordance with the plan.

Current wording

For the nine months ended September 30, 2024, cash provided by operating activities of $540 million resulted primarily from net income adjusted for noncash items of $670 million and a net decrease from our operating assets and liabilities of $130 million. The net decrease from our operating assets and liabilities was due to a $126 million increase in accounts receivable, a $68 million increase in prepaid expenses and other assets and a $32 million decrease in operating lease liabilities, partially offset by an $87 million increase in accounts payable and a $9 million increase in accrued expenses and other liabilities. The increase in accounts receivable was due to the growth of our business and the timing of cash receipts from clients. The increase in prepaid expenses and other assets was primarily due to cash paid for income taxes. The decrease in operating lease liabilities was due primarily to rent payments. The increase in accounts payable was due to the growth of our business and the timing of supplier payments for the cost of advertising inventory, data and add-on features. The increase in accrued expenses and other liabilities was primarily due to an increase in the liability related to the ESPP for employee contributions toward the upcoming purchase of shares.

Previous wording

For the six months ended June 30, 2023, cash provided by operating activities of $316 million resulted primarily from net income adjusted for noncash items of $328 million, and a net decrease from our operating assets and liabilities of $13 million. The net decrease from our operating assets and liabilities was primarily due to a $35 million increase in accounts receivable and a $25 million decrease in operating lease liabilities, partially offset by a $51 million increase in accounts payable. The increase in accounts receivable was due to seasonality and the timing of cash receipts from clients. The decrease in operating lease liabilities was due primarily to rent payments. The increase in accounts payable was due to seasonality and the timing of payments to suppliers for the cost of advertising inventory, data and add-on features.

Current wording

For the nine months ended September 30, 2023, cash provided by operating activities of $507 million resulted primarily from net income adjusted for noncash items of $542 million, and a net decrease from our operating assets and liabilities of $35 million. The net decrease from our operating assets and liabilities was primarily due to a $131 million increase in accounts receivable and a $37 million decrease in operating lease liabilities, partially offset by a $126 million increase in accounts payable and an $18 million increase in accrued expenses and other liabilities. The increase in accounts receivable was due to seasonality and the timing of cash receipts from clients. The decrease in operating lease liabilities was due primarily to rent payments. The increase in accounts payable was due to seasonality and the timing of supplier payments for the cost of advertising inventory, data and add-on features. The increase in accrued expenses and other liabilities was due to the timing of payment of personnel costs.

Previous wording

Our primary investing activities consist of investing in short-term marketable securities, purchases of property and equipment for the expansion of our new facilities in support of our expanding headcount as a result of our growth and capital expenditures to develop our software and hosting capabilities in support of enhancing our technology platform. As our business grows, we expect our capital expenditures to increase, and our other investment activity may increase.

Current wording

Our primary investing activities consist of investing in short-term marketable securities, purchases of property and equipment for the expansion of our new facilities in support of our hosting capabilities and expanding headcount as a result of our growth and capital expenditures to develop our software. As our business grows, we expect our capital expenditures to increase, and our other investment activity may increase.

Previous wording

For the six months ended June 30, 2024, we used $37 million of cash in investing activities, consisting of $29 million to purchase property and equipment, $4 million of investments in capitalized software and $3 million of net purchases of short-term investments.

Current wording

For the nine months ended September 30, 2024, we used $96 million of cash in investing activities, consisting of $78 million to purchase property and equipment, $12 million of net purchases of short-term investments and $7 million of investments in capitalized software.

Previous wording

For the six months ended June 30, 2023, we used $62 million of cash in investing activities, consisting of $42 million of net purchases of short-term investments, $17 million to purchase property and equipment and $3 million of investments in capitalized software.

Current wording

For the nine months ended September 30, 2023, we used $51 million of cash in investing activities, consisting of $23 million of net purchases of short-term investments, $22 million to purchase property and equipment and $6 million of investments in capitalized software.

Previous wording

For the six months ended June 30, 2024, we used $115 million of cash in financing activities, consisting of $125 million of cash paid for repurchases of our Class A common stock and $58 million of taxes paid for restricted stock award settlements, partially offset by $38 million of proceeds from stock option exercises and $30 million of proceeds from our ESPP.

Current wording

For the nine months ended September 30, 2024, we used $117 million of cash in financing activities, consisting of $177 million of cash paid for repurchases of our Class A common stock and $98 million of taxes paid for restricted stock award settlements, partially offset by $128 million of proceeds from stock option exercises and $30 million of proceeds from our ESPP.

Previous wording

For the six months ended June 30, 2023, we used $318 million of cash in financing activities, consisting of $336 million of cash paid for repurchases of Class A common stock and $31 million of taxes paid for restricted stock award settlements, partially offset by $28 million of proceeds from stock option exercises and $21 million of proceeds from our ESPP.

Current wording

For the nine months ended September 30, 2023, we used $415 million of cash in financing activities, consisting of $427 million of cash paid for repurchases of Class A common stock and $55 million of taxes paid for restricted stock award settlements, partially offset by $45 million of proceeds from stock option exercises and $21 million of proceeds from our ESPP.

Previous wording

Our principal commitments consist of non-cancelable operating leases for our various office facilities and other contractual commitments consisting of obligations to our hosting services and hardware providers and providers of software as a service. In certain cases, the terms of the lease agreements provide for rental payments on a graduated basis.

Current wording

Our principal commitments consist of non-cancelable operating leases for our various office facilities and other contractual commitments consisting of obligations to our hosting services, hardware providers and providers of software as a service. In certain cases, the terms of the lease agreements provide for rental payments on a graduated basis.