Leah Stearns: Yes. Any costs associated with servicing the hurricanes that occurred in this quarter would impact to the quarter.
Bret Jordan: Okay. My question was more like was that a very high-cost prep event that didn’t generate the return? I guess, is it a negative for the first quarter?
Jeff Liaw: It is, but also to what extent that’s just the cost of doing business in 2023 and beyond, right? So we’ll talk about next quarter next quarter. We definitely incurred some mobilization costs in preparation for a storm that didn’t ultimately materialize. Now I think to be fair, if you look back to major storms like, Harvey, let’s go all the way back to 2017, a lot of the massive expenses would be towing costs, temporary leases, short-term leases of racetracks and so forth. In this case, we haven’t incurred those kinds of costs in part because we deployed the capital to own the land to be ready for it. So we would likely not have entered into meaningful emergency leases in this case, even had the storm arrived. And as for the towing, the towing largely never materialized at all because the cars weren’t there.
Bret Jordan: Okay. And then just a quick question on sort of thoughts around the cash balance. Obviously, you guys are still piling it up, despite buying a fair amount of real estate every year. Do you have any, I guess, is it just interest income off of that or are there longer-term strategies around what you do with $2-plus billion?
Leah Stearns: Sure. With respect to the current investment strategy, given the fact that we are earning in excess of 5.25 on government T-bills that are short duration and tenure, we are currently comfortable using that until we find a higher and better use, and we continue to look at opportunities to invest. Everything across the spectrum of additional technology, land, logistic opportunities to bring down cost and obviously looking at ways to enhance the broader business that we have. So I don’t know, Jeff, do you want to add?
Jeff Liaw: Yes. Bret, over the very long haul, as you know, we’ve returned capital to shareholders via stock buybacks. And no doubt, we will — we’ll do that again. It’s a question of when and how. And historically, we’ve done so both via open market purchases as well as through more structured Dutch tender offerings and so forth. So that is the long-term answer. In the near term, yes, we are investing that cash in treasuries, which are certainly yielding better returns than they would have historically. And we think the fortress balance sheet is of value to ourselves and to our clients. I think it positions us to act very aggressively when we see land purchase opportunities, for example. It equips us to respond to a pandemic in a way that a lesser capitalized company could not, right?
The pandemic arrived. I know it feels like a distant memory now, but there’s a moment which we wondered if we’d be able to sell a car or if every DMV would shut down. And knowing that we have the capitalization we do, we’re able to operate without furloughing employees, without suspending CapEx and we continue our business as is, and we will bend so that our insurance companies can rely upon us. That balance sheet is part of what enables us to be that resilient in that environment.
Bret Jordan: Right. Thank you.
Jeff Liaw: Thanks, Bret.
Operator: Thank you. Our next question comes from the line of Ryan Brinkman with JPMorgan. Please proceed with your question.
Ryan Brinkman: Hi. Thanks for taking my question. I thought to ask on the Hills Motors acquisition that’s gone through with the regulatory approval now. And I heard you say that it was driven by customer preferences in that region. But just curious about maybe gauge your interest in as we think about what you could potentially do with your cash word, et cetera. Your desire inclination to participate in these other sort of adjacencies which might, in some cases, maybe be, I think, competing with buyers of vehicles at your auctions, although not sellers. And is it somehow more restricted to the UK or is there maybe opportunity in the US or are there other potential vertical integrations or adjacencies that maybe we’re not thinking of that could potentially be attractive to expand into inorganically?
Jeff Liaw: Yes, I think that’s an appropriate question. And when we consider areas in which we would expand strategically, we certainly always start with the question, what are we good at and where can we deploy those capabilities most profitably? And I think what we know we’re good at is managing a high-volume digital auction platform, which we’ve done now for literally 20 years. So we started that in 2003 and have refined our approach repeatedly over the years and think we have a best-in-class online digital real-time auction platform, part one. Part two, I think we’re good at managing the complex physical logistics of moving cars around, literally millions of vehicles that we retrieve from various places, including homeowner premises, dealers, repair shops and the like and deploying all of the employees and subcontractors to retreat them.
We think we’re good at managing complex regulatory environments as well. So we have 50 different DMVs, a multitude of different countries that we serve that have different title processes and so forth, and we can navigate those universe as well. And so knowing all of that, we consider strategically how do we deploy those capabilities. You know, having followed us for years that we are careful about that. We acquired National Powersport Auctions in 2017, which sells wholesale motorcycles. And we have not expanded beyond the perimeter of Copart except to expand ourselves into new countries very meaningfully since then. So all of those investment opportunities would face a very high bar for us to pursue. In the specific question you raised, there are markets in which we participate today.
For example, the US in which the dismantling industry and the use of alternative parts is a well-trodden path already. The insurance industry, the repair industry here is well accustomed to that. And so there are many companies, including public companies that are in that business today, I think it’s unlikely we would ever ourselves enter that space in part for the reasons you articulated, which is that we are the neutral intermediary that is optimizing auction proceeds for our customers. And if the best possible economic outcome for that car is dismantled, the dismantle will buy it. If the best possible outcome for that car is that it is driven again in the US or in Poland or in Nigeria, then our auction will find that buyer as well. As you noted, in this case in the UK, perhaps elsewhere in Europe, there has been less — has been less penetration in alternative parts utilization.
And to help turbocharge that some of our customers have made that specific request that they would like us to assist them in that. They don’t — I don’t believe they expect us ultimately to dismantle a majority or anywhere close to a majority of the vehicles. The point is that having that capability as well at their request, right, we are very happy, as you know, to be the auction intermediary and to sell the car first and foremost to a third party wherever that third party may be, whether it’s in the UK or elsewhere. But in this case, we’ll meet our customers where they are and where they were is specifically asking us to take this on, and we’re happy to do it.
