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Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with
our audited consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. Some
of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including
information with respect to our plans and strategy for our business and related financing, includes forward-looking statements
that involve risks and uncertainties. You should read the “Risk Factors” and the “Cautionary Statement Regarding Forward-
Looking Statements” sections of this Annual Report on Form 10-K for a discussion of important factors that could cause actual
results to differ materially from the results described in or implied by the forward-looking statements contained in the following
discussion and analysis.
Overview
We are a leading direct response marketer that provides liquidity to our customers by purchasing structured settlement,
annuity and lottery payment streams and interests in the proceeds of legal claims in the United States. We securitize or sell those
payment streams in transactions that are structured to generate cash proceeds to us that exceed the purchase price we paid for those
payment streams. We have developed our market leading position as a purchaser of structured settlement payments through our
highly recognizable brands and multi-channel direct response marketing platform.
Structured settlements are financial tools used by insurance companies to settle claims on behalf of their customers. They
are contractual arrangements underwhich an insurance company agrees tomake periodic payments to an individual as compensation
for a claim typically arising out of a personal injury. The structured settlement payments we purchase have long average lives of
more than ten years and cannot be prepaid.
We operate two market leading and highly recognizable brands, J.G. Wentworth and Peachtree, each of which generates
a significant volume of inbound inquiries. Brand awareness is critical to our marketing efforts, as there are no readily available
lists of holders of structured settlements, annuities or potential pre-settlement customers. Since 1995 through 2014, we have
invested approximately $689.5million inmarketing to establish our brand names and increase customer awareness throughmultiple
media outlets. According to Kantar Media, since 2008, each of our brands has spent approximately five-times the amounts spent
by the nearest industry competitor on television advertising and together have spent approximately 80% of the total amount spent
by all major participants in the industry. As a result of our substantial marketing investment, we believe our two core brands are
the #1 and #2 most recognized brands in their product categories. Since 1995, we have been building proprietary databases of
current and prospective customers, which we continue to grow through our marketing efforts and which we consider a key
differentiator from our competitors.
We serve the liquidity needs of structured settlement payment holders by providing our customers with cash in exchange
for a certain number of fixed scheduled future payments. Customers desire liquidity for a variety of reasons, including debt
reduction, housing, automotive, business opportunities, education and healthcare costs. Since 1995, we have purchased over $10.6
billion of undiscounted structured settlement payment streams and have completed 40 asset-backed securitizations totaling over
$5.4 billion in aggregate note issuance volume. The Company refers to undiscounted total receivable balances as “TRB.” TRB
purchases for the years ended December 31, 2014 and 2013 were $1,077.8 million and $1,125.0 million, respectively.
We act as an intermediary that identifies, underwrites and purchases individual payment streams from our customers,
aggregates the payment streams and then finances them in the institutional market at financing rates that are below our cost to
purchase the payment streams. We initially fund our purchase of structured settlement payments and annuities with available cash
and cash equivalents or through committed warehouse lines. Our guaranteed structured settlement and annuity warehouse facilities
totaled $750.0 million as of December 31, 2014 and 2013, respectively. We intend to undertake a sale or securitization of these
assets approximately three times per year, subject to our discretion, in transactions that generate excess cash proceeds over the
purchase price we paid for those assets and the amount of warehouse financing used to fund that purchase price. We finance the
purchase of other payment steams using a combination of other committed financing sources and our operating cash flows.
Because our purchase and financing of periodic payment streams is undertaken on a positive cash flow basis, we view
our ability to purchase payment streams as key to our business model. Another key feature of our business model is our ability to
aggregate payment streams from many individuals and from a well-diversified base of payment counterparties. We continuously
monitor the efficiency of marketing expenses and the hiring and training of personnel engaged in the purchasing process.
