Company Insights Equity Research June 22, 2016

Transcription

1 Company Insights Equity Research June 22, 2016 Technology Blackberry Ltd. (BBRY-Q, BB-T) US$7.05 C$9.03 Will Radar Put BlackBerry Back on the Map? Daniel Chan, CFA Justin Kew, CFA, (Associate) TD Investment Summary BlackBerry has started trialing its first Internet of Things (IoT) service, Radar, and is expected to go live with the commercial offering this summer. Radar is an end-to-end trailer tracking service that should improve margins and lower capex for fleet operators. Radar will allow operators to monitor location, temperature, humidity, and the presence of cargo. Using this information, operators can reduce costs, and increase productivity. We believe that the first market BlackBerry will address is the North American trailer market, and eventually expand to the global container market if it proves to be successful. The U.S. trailer tracking market can be large. Depending on the source of the statistics, there are anywhere between 3 million-12 million trailers currently in the U.S. alone. Of this amount, it is estimated that only 14-20% have telematics services attached to them, leaving an under-penetrated market for Radar. If Radar starts addressing the global trailers and shipping containers market, the addressable market would be much larger. We estimate the total addressable market (TAM) for Radar to be $1.7 billion of recurring annual revenue. We estimate Radar's TAM at $2.1 billion in hardware sales and $1.7 billion in annual recurring revenue. Considering that the company generated $862mm in hardware sales and $527mm in software revenue in the last 12 months (LTM), we believe that Radar has the potential to be a significant contributor to BlackBerry's financial performance. Walmart could be testing Radar. Our channel checks indicate that there are three companies testing Radar in North America, one of which may be Walmart. We believe that signing Walmart would be a huge catalyst to drive Radar adoption across the entire trucking industry. TD Investment Conclusion We are maintaining our BUY rating and $9.00 target price. We believe that BlackBerry Radar offers a large opportunity that the Street is currently ignoring. By leveraging its core competencies in mobile technology, embedded systems, and security, we believe that BlackBerry has a chance to grow its software and services in completely new verticals. Recommendation: Risk: 12-Month Target Price: 12-Month Dividend (Est.): BUY HIGH US$9.00 US$ Month Total Return: 27.7% Market Data (US$) Current Price US$ Week Range $ $9.46 Mkt Cap (f.d.) ($mm) $3,698.4 Float Cap ($mm) $3,666.7 EV ($mm) $2,324.6 Current Dividend $0.00 Dividend Yield 0.0% Avg. Daily Trading Vol. 4,460,441 Financial Data (US$) Fiscal Y-E February Shares O/S (f.d)(mm) Float Shares (mm) Net Cash ($mm) $1,374.0 Net Cash/ Shr (f.d.) $2.62 Net Debt/Shr (f.d.) $0.00 Net Debt/Total Cap 0.0% Estimates (US$) Year 2015A 2016A 2017E 2018E Sales ($mm) 3, , , ,981.2 EBITDA ($mm) EPS (f.d.) (0.09) (0.24) (0.20) (0.16) EBITDA ($mm) Quarterly Estimates (US$) Year 2015A 2016A 2017E 2018E Q Q Q Q Valuations Year 2015A 2016A 2017E 2018E EV/Sales 0.7x 1.1x 1.3x 1.2x EV/EBITDA 3.5x 5.6x 8.2x 6.8x P/E (f.d.) nmf nmf nmf nmf Supplemental Data Year 2015A 2016A 2017E 2018E Shipments (mm) All figures in US$, unless otherwise specified BBRY-Q: Price Company Profile BlackBerry develops and manufactures wireless solutions for , SMS messaging, phone, and Internet and intranet-based applications. This includes BlackBerry smartphones, related devices, and server software and applications. 5 5 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Please see the final pages of this document for important disclosure information. Page 1 of 10

2 TD Investment Summary Radar is an End-to-end Trailer Tracking Service (Telematics) that should Improve Margins and Lower Capex for Fleet Operators BlackBerry Radar will allow fleet operators to track and monitor the status of their trailers. The service will allow operators to monitor location, temperature, humidity, and the presence of cargo. Using this information, operators can reduce costs, such as theft and insurance premiums, and increase productivity by improving asset utilization through the automation of manual processes. For example, when a container is kept full or empty for longer than the contracted time, fees known as demurrage and detention (D&D) charges are typically applied. Without a telematics solution, billing for these situations becomes very difficult; however, because Radar can determine the load status of the container, D&D billing becomes an automated process. Over the long run, more D&D billing is likely to drive higher asset turns as compliance with contracts increases. All these benefits should translate into higher margins and lower capex for fleet operators. BlackBerry has already started testing the new service with a number of potential customers in North America and is expected to commercially launch Radar in the coming months. We believe that the first market BlackBerry will address is the North American trailer market, and eventually expand to the global container market if it proves to be successful. Radar includes both hardware and SaaS components. BlackBerry will provide all the components required to make Radar work as an integrated system. This includes a small, standalone hardware unit that takes minutes to install on the door of a trailer, connectivity to a cell network, and the cloud platform from which to manage and monitor the fleet. It is important that Radar be an end-to-end solution because fleet operators do not want to piece together a system of their own simplicity is very important. Moreover, we believe that BlackBerry will be able to monetize both the hardware and SaaS component of the system, which we believe will have both strategic and financial impact for the company. Exhibit 1. Radar is an End-to-end Trailer Tracking Service that should Drive Efficiency Gains Source: Company reports Page 2 of 10

3 The U.S. Trailer Tracking Market can be Large There are anywhere between 3 million 12 million trailers currently in the U.S. alone. The estimated amount of trailers in the U.S. varies widely. On the low end, leading trailer manufacturer, Wabash, estimates that approximately 3 million trailers are in the U.S., whereas the Federal Highway Administration had 11.7 million commercial trailer registrations in The amount is also expected to increase in the near term as the current fleet ages following a capex cut from operators after the financial crisis. Keep in mind that this analysis only considers the trailers in the U.S. If Radar starts addressing the global trailers and shipping containers markets, the addressable market would be much larger. Telematics penetration in the U.S. is still very low. Frost & Sullivan estimates that only 14 20% of the trailer population in the U.S. has telematics services attached to them. This leaves a significant unaddressed market for BlackBerry Radar. Radar could have Significant Financial and Strategic Impact. Large Players Already Testing it Out We estimate the total addressable market for Radar to be $1.7 billion of recurring annual revenue. We make the following assumptions for our base case: 7 million trailers in the U.S. This coincides with telematics incumbent, Omnitracs estimate of 6.9 million. Supporting this estimate is that there were 2.6 million tractors registered in the U.S. in 2014; if we assume three trailers for every tractor in the U.S., that implies 7.9 million trailers. $300 for the hardware. Considering that the iphone ASP is ~$650 and includes far more expensive hardware (high-resolution touch screen, faster and more wireless connections, more memory, and faster processor), we would not be surprised to see the Radar module go for less than half of that. We would not rule out the possibility of BlackBerry giving the module away for free to grow subscribers and, therefore, recurring revenue; however, we believe that it will first try to monetize the hardware so that trailer owners do not abuse the modules. Monthly fee of $20. The Federal Motor Carrier Safety Administration (FMCSA) estimates that the average annual cost of an electronic logging device (ELD) is approximately $495 per truck, which equates to about $40/month. The FMCSA has mandated that ELDs be installed in some trucks to monitor drivers driving time. In our assumption, we apply a discount to this rate considering that trailer tracking solutions are, arguably, less sophisticated than tractor tracking solutions and are not required by the government. Radar could also offer tiers of monthly fees depending on what features are required. Using these assumptions, we estimate a base case where BlackBerry can address a market of $2.1 billion in hardware sales and $1.7 billion in annual recurring revenue. Considering that the company generated $862 million in hardware sales and $527 million in software revenue in the last 12 months (LTM), we believe that Radar has the potential to be a significant contributor to BlackBerry s financial performance. Recall that these assumptions are for the U.S. trailer market only, and if Radar is expanded to address the global market, the TAM could be much larger. Page 3 of 10

4 Exhibit 2. Radar Addresses a $1.7-billion Recurring Annual Revenue and $2.1-billion Hardware Market Total Addressable Market of Recurring Annual Revenue (US$mm) U.S. Trailers (mm) Monthly Fee (US$) #### $10 $15 $20 $25 $30 $35 $40 $45 $50 3 $360 $540 $720 $900 $1,080 $1,260 $1,440 $1,620 $1,800 4 $480 $720 $960 $1,200 $1,440 $1,680 $1,920 $2,160 $2,400 5 $600 $900 $1,200 $1,500 $1,800 $2,100 $2,400 $2,700 $3,000 6 $720 $1,080 $1,440 $1,800 $2,160 $2,520 $2,880 $3,240 $3,600 7 $840 $1,260 $1,680 $2,100 $2,520 $2,940 $3,360 $3,780 $4,200 8 $960 $1,440 $1,920 $2,400 $2,880 $3,360 $3,840 $4,320 $4,800 9 $1,080 $1,620 $2,160 $2,700 $3,240 $3,780 $4,320 $4,860 $5, $1,200 $1,800 $2,400 $3,000 $3,600 $4,200 $4,800 $5,400 $6, $1,320 $1,980 $2,640 $3,300 $3,960 $4,620 $5,280 $5,940 $6, $1,440 $2,160 $2,880 $3,600 $4,320 $5,040 $5,760 $6,480 $7,200 U.S. Trailers (mm) Source: TD Securities Inc. Total Addressable Market of Hardware Revenue (US$mm) Device Cost (US$) #### $100 $150 $200 $250 $300 $350 $400 $450 $500 3 $300 $450 $600 $750 $900 $1,050 $1,200 $1,350 $1,500 4 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 5 $500 $750 $1,000 $1,250 $1,500 $1,750 $2,000 $2,250 $2,500 6 $600 $900 $1,200 $1,500 $1,800 $2,100 $2,400 $2,700 $3,000 7 $700 $1,050 $1,400 $1,750 $2,100 $2,450 $2,800 $3,150 $3,500 8 $800 $1,200 $1,600 $2,000 $2,400 $2,800 $3,200 $3,600 $4,000 9 $900 $1,350 $1,800 $2,250 $2,700 $3,150 $3,600 $4,050 $4, $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $5, $1,100 $1,650 $2,200 $2,750 $3,300 $3,850 $4,400 $4,950 $5, $1,200 $1,800 $2,400 $3,000 $3,600 $4,200 $4,800 $5,400 $6,000 We believe that Walmart could be testing Radar. Our channel checks indicate that there are three companies testing Radar in North America, one of which may be Walmart. Walmart has one of the largest trailer fleets in the U.S., with ~62,000 trailers. Considering Walmart s size, we believe that signing Walmart would be a huge catalyst to drive Radar adoption across the entire trucking industry. Operators could easily make back the cost of the annual fees. We have seen D&D charges range from $100 $300 per day. If Radar has an annual fee of $240, that would imply that fleet operators could make back the annual cost of Radar by capturing approximately two days of D&D per year that they would not have been able to capture without the greater enforcement capable with Radar. Radar is strategically significant for BlackBerry s long-term growth prospects. Radar is interesting because it leverages all of BlackBerry s strengths to solve some of the problems faced by existing telematics providers: the company s experience in designing energy-efficient, rugged handsets contributed to a compact hardware design that has a three-year battery life; experience with embedded systems, through QNX, lends credibility to the reliability of the device; and BlackBerry s core competency in secure, efficient messaging allows Radar to transmit with more frequency and with a higher level of confidence that systems won t get hacked. We believe that BlackBerry will leverage the investments made in this platform and adapt them to other verticals beyond asset tracking, such as medical. Radar is just the beginning of BlackBerry s IoT strategy if successful, we believe that there is a much longer runway ahead. Page 4 of 10

5 Competition Already Exists, but Radar has Some Differentiating Features There are a number of incumbents Established trailer telematics companies include Omnitracs LLC (Private), ORBCOMM Inc. (ORBC-NASDAQ), and SkyBitz (Private). Omnitracs was sold by Qualcomm to Vista Equity Partners in late-2013 for approximately $800 million. Omnitracs subsequently acquired Roadnet and the combined company has approximately 3,800 customers, tracking over 500,000 vehicles. ORBCOMM owns and operates a constellation of 41 satellites that are used for its telematics solutions. ORBCOMM has approximately 1.6 million subscribers and is a leader in tracking refrigerated trailers (reefers). SkyBitz has over 800 customers and tracks over 200,000 assets. but BlackBerry s Radar is superior in key areas, in our opinion. Although incumbents have a head-start on Radar, there are a few key areas where we believe Radar is superior: More frequent updates. Radar reads data from the sensors every five minutes and transmits those readings every 15 minutes. This compares with the competition which send updates only 4 5 times a day! This is extremely important considering that real-time status updates are incredibly important for logistics optimization as well as for theft deterrence. If only 4 5 messages are sent in a day, the trailer could be moved or emptied out and the operator would not even know about it for hours. Long battery life. Many competing solutions rely on rechargeable batteries powered by solar panels or the truck s power. If a trailer is left disconnected without sun for an extended period of time, there is the possibility that the battery will be discharged and messages will not be sent. We also believe that the poor battery life offered by some competitors is the reason why some competing solutions need to lower the frequency of sending their status messages. Radar is a standalone solution that has a battery life of three years when set to send messages every 15 minutes, which we believe is significantly longer than the competition. The battery, however, cannot be recharged and needs to be replaced after three years. We would not be surprised to see BlackBerry introduce a rechargeable version in the future, which would significantly increase the number of years before maintenance. Wide array of bundled sensors is far simpler. Although competing solutions have additional capabilities, particularly for reefers, they require the addition of optional sensors to have the same capabilities as Radar. This complicates system integration as well as installation. Radar can be installed in less than 10 minutes and can then be left alone for three years until the battery needs to be replaced. Competing solutions require 30 minutes just for the installation of the base unit. Connecting additional sensors could also complicate the process. Page 5 of 10

6 Exhibit 3. Product Comparison Highlights Radar s Unique Features Installation Message Frequency BlackBerry Radar Omnitracs TT210 ORBCOMM GT1100 SkyBitz Falcon GTX2000 Three mounting bolts; <10-minute installation ; No additional installation of sensors Reads sensors every five minutes Sends every 15 minutes. Six mounting bolts; 30-minute installation for base unit; Additional sensors require separate installation Reads sensors every 30 minutes Sends 4 times per day One mounting bolt; 30-minute installation for base unit; Additional sensors require separate installation N/A Additional sensors require separate installation Sends approximately five messages per day 1. Battery Life 3 years Rechargeable Rechargeable Multi-year, up to 5,000 messages Connectivity Cellular Cellular Cellular & Satellite Cellular Sensors Location Humidity Temperature Door Status Loading Status Tire Pressure Refrigerated Container Monitoring Legend: sensor included in the base package additional sensor needs to be purchased and installed sensor not available 1. Based on 5,000 messages over three years. Source: Company documents, TD Securities Inc. Exhibit 4. Q1/17 Expectations Q1/17 Preview Expecting Weak Hardware, Good Software Growth BlackBerry is scheduled to report Q1/F17 results before the market open on Thursday June 23, A call is scheduled to be held at 8:00 a.m ET. The dial-in number is TD est. Y/Y Q/Q Cons. Var Q1/F17E Q1/F16A (%) Q4/F16A (%) Q1/F17E (%) Software and services % % Hardware revenue (29%) % Service access fees (53%) (18%) Other revenue % 7.0 0% Revenue (28%) (2%) % Adj. gross margin (%) 47.7% 50.3% 48.7% 47.5% 0% Adj. EBITDA (48%) % % Adj. EBITDA (%) 17.2% 23.9% 16.0% 15.6% Adj. Diluted EPS ($0.04) ($0.05) 33% ($0.03) (4%) ($0.08) 55% Handset shipments (mm) (45%) % Average selling price $310 $239 30% $315 (2%) Source: Company Reports, Capital IQ, TD Securities Page 6 of 10

7 A full quarter of Priv, but we expect modest impact on handset shipments given stiff competition. The Priv launched in the U.S. in November 2015 and was available in approximately 31 countries by the end of February. The market reception for the Priv has been tepid given its high price point and competitors' flagship handsets, including the Samsung S7 and LG G5 that were announced at MWC. There have been reports that AT&T has experienced higher-than-expected Priv returns and that the Priv is no longer being sold through T-Mobile s website. We expect robust software revenue growth driven by acquisitions. In Q1/16, there was $67 million in IP licensing revenue, which we expect to be significantly lower in Q1/17. Excluding the IP revenue, we expect software and services revenue to grow 120%, with organic revenue growth of approximately 20%. Recall that approximately 70% of software and services revenue is recurring, giving the segment a relatively reliable baseline. Valuation Exhibit 5. BlackBerry is Trading Below Peers EV FCF Yld EBITDA Net Debt EV/Revenue EV/EBITDA Company (US$mm) LTM (% LTM) to Cap. LTM NTM C17E LTM NTM C17E BlackBerry 2, % 19% -75% 1.1x 1.3x 1.2x 5.6x 8.2x 7.5x Mobility/Enterprise Software MobileIron % -44% -145% 1.1x 1.1x 1.0x nmf nmf nmf Sierra % 5% -24% 0.8x 0.7x 0.6x 15.5x 9.4x 8.0x VMware 19, % 26% -69% 2.8x 2.7x 2.7x 10.9x 7.8x 7.8x Citrix 13, % 28% 5% 4.0x 4.0x 3.9x 14.4x 11.8x 11.1x SAP 97, % 28% 8% 4.1x 3.9x 3.7x 14.7x 11.7x 10.8x Apple 549, % 34% 11% 2.4x 2.5x 2.4x 7.0x 7.9x 7.5x Mean 4.7% 13% -36% 2.5x 2.5x 2.4x 12.5x 9.7x 9.0x Canadian Enterprise Software Open Text 7, % 36% 27% 4.1x 3.8x 3.6x 11.3x 10.4x 9.8x Enghouse 1, % 22% -34% 4.5x 4.2x 3.7x 20.5x 16.4x 14.1x Constellation 8, % 23% 15% 4.4x 4.0x 3.5x 19.0x 15.5x 14.1x Mean 5.0% 27% 2% 4.4x 4.0x 3.6x 16.9x 14.1x 12.7x Global Mean 4.8% 18% -23% 3.1x 3.0x 2.8x 14.2x 11.4x 10.4x Source: Company Reports, Capital IQ, TD Securities Page 7 of 10

8 Exhibit 6. Sum-of-the-parts Valuation Justification of Target Price C2017 Multiple Per Share Revenue Low Target High Low Target High Notes Software and services x 3.1x 4.0x $3.62 $5.61 $7.23 Service access fees $0.69 $0.69 $0.69 Based on a DCF valuation Net cash $2.64 $2.64 $2.64 Hardware $0.00 $0.00 $0.00 Total $6.94 $8.93 $10.56 Software and services revenue includes software and IP revenue Source: Company Reports, TD Securities Key Risks to Target Price Key risks to the target price include slowing software revenue growth; accelerating service revenue decline; increased losses in hardware; increased competition and loss of market share; purchasing power of large mobile network operators; legal risk related to potential patent litigation; technology risks; and foreign exchange volatility. Page 8 of 10

9 Company Insights Equity Research June 22, 2016 June 22, 2016 TD Securities Equity Research Disclosures Distribution of Research Ratings^ Investment Services Provided* REDUCE - 5.0% BUY % 75% 50% 64.17% 32.09% 25% HOLD % 3.74% 0% BUY HOLD REDUCE Definition of Research Ratings ACTION LIST BUY: The stock's total return is expected to exceed a minimum of 15%, on a risk-adjusted basis, over the next 12 months and it is a top pick in the Analyst's sector. BUY: The stock s total return is expected to exceed a minimum of 15%, on a risk-adjusted basis, over the next 12 months. SPECULATIVE BUY: The stock's total return is expected to exceed 30% over the next 12 months; however, there is material event risk associated with the investment that could result in significant loss. HOLD: The stock s total return is expected to be between 0% and 15%, on a risk-adjusted basis, over the next 12 months. TENDER: Investors are advised to tender their shares to a specific offer for the company's securities or to support a proposed combination reflecting our view that a superior offer is not forthcoming. REDUCE: The stock s total return is expected to be negative over the next 12 months. Overall Risk Rating in order of increasing risk: Low (7.6% of coverage universe), Medium (34.9%), High (43.1%), Speculative (14.4%) Research Dissemination Policy TD Securities makes its research products available in electronic and/or printed formats and as soon as practicable distributes them to its institutional clients who are entitled to receive them. The Action Notes are distributed by , and are available in PDFform on Thomson Reuters, Bloomberg, S&P Capital IQ and FactSet. Research Reports are distributed by ; they are also printed and distributed by courier to our entitled clients. PDFs of Reports are available on Thomson Reuters, Bloomberg, S&P Capital IQ and FactSet. All research is available by password to entitled institutional clients at Analyst Certification Each analyst of TD Securities Inc. whose name appears on page 1 of this research report hereby certifies that (i) the recommendations and opinions expressed in the research report accurately reflect the research analyst's personal views about any and all of the securities or issuers discussed herein that are within the analyst s coverage universe and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the provision of specific recommendations or views expressed by the research analyst in the research report. Disclaimer This material is for general informational purposes only and is not investment advice nor does it constitute an offer, recommendation or solicitation to buy or sell a particular financial instrument. It does not have regard to the specific investment objectives, financial situation, risk profile or the particular needs of any specific person who may receive this material. No representation is made that the information contained herein is accurate in all material respects, complete or up to date, nor that it has been independently verified by TD Securities. Recipients of this analysis or report are to contact the representative in their local jurisdiction with regards to any matters or questions arising from, or in connection with, the analysis or report. Historic information regarding performance is not indicative of future results and investors should understand that statements regarding future prospects may not be realized. All investments entail risk, including potential loss of principal invested. Performance analysis is based on certain assumptions, the results of which may vary significantly depending on the modelling inputs assumed. This material, including all opinions, estimates and other information, constitute TD Securities judgment as of the date hereof and is subject to change without notice. The price, value of and income from any of the securities mentioned in this material can fall as well as rise. Any market valuations contained herein are indicative values as of the time and date indicated. Such market valuations are believed to be reliable, but TD Securities does not warrant their completeness or accuracy. Different prices and/or valuations may be available elsewhere and TD Securities suggests that valuations from other sources be obtained for comparison purposes. Any price or valuation constitutes TD Securities judgment and is subject to change without notice. Actual quotations could differ subject to market conditions and other factors. TD Securities disclaims any and all liability relating to the information herein, including without limitation any express or implied representations or warranties for, statements contained in, and omissions from, the information. TD Securities is not liable for any errors or omissions in such information or for any loss or damage suffered, directly or indirectly, from the use of this information. TD Securities may have effected or may effect transactions for its own account in the securities described herein. No proposed customer or counterparty relationship is intended or implied between TD Securities and a recipient of this document. TD Securities makes no representation as to any tax, accounting, legal or regulatory issues. Investors should seek their own legal, financial and tax advice regarding the appropriateness of investing in any securities or pursuing any strategies discussed herein. Investors should also carefully consider any risks involved. Any transaction entered into is in reliance only upon the investor s judgment as to financial, suitability and risk criteria. TD Securities does not hold itself out to be an advisor in these circumstances, nor do any of its representatives have the authority to do so. The information contained herein is not intended for distribution to, or use by, any person in any jurisdiction where such distribution or use would be contrary to applicable law or regulation or which would subject TD Securities to additional licensing or registration requirements. It may not be copied, reproduced, posted, transmitted or redistributed in any without the prior written consent of TD Securities. Page 9 of 10

10 Company Insights Equity Research June 22, 2016 June 22, 2016 If you would like to unsubscribe from our distribution lists at any time, please contact your TD Securities Sales Contact. If you are located in Europe, Asia, Australia or New Zealand you may also unsubscribe by ing us at You can access our Privacy Policy here ( Australia: If you receive this document and you are domiciled in Australia, please note that this report is intended to be issued for general information purposes only and distributed through the Toronto Dominion Australia Limited ( TDAL ). TDAL does not hold itself out to be providing financial advice in these circumstances. TD Securities is a trademark and represents certain investment dealing and advisory activities of Toronto-Dominion Bank and its subsidiaries, including TDAL. The Toronto-Dominion Bank is not an authorized deposittaking or financial services institution in Australia. TDAL is a holder of an Australian Financial Services License (404698) and is regulated by the Australian Securities and Investments Commission. Canada: Canadian clients wishing to effect transactions in any security discussed herein should do so through a qualified salesperson of TD Securities or TD Securities Inc. TD Securities Inc. is a member of the Canadian Investor Protection Fund. Hong Kong: This document, which is intended to be issued in Hong Kong only to Professional Investors within the meaning of the Securities and Futures Ordinance (the "SFO") and the Securities and Futures (Professional Investor) Rules made under the SFO, has been distributed through Toronto-Dominion Bank, Hong Kong Branch, which is regulated by the Hong Kong Monetary Authority. China, India and South Korea: Insofar as the document is received by any persons in the People's Republic of China ( PRC ) (which, for such purposes, does not include Hong Kong, Macau or Taiwan), India and South Korea, it is intended only to be issued to persons who have the relevant qualifications to engage in the investment activity mentioned in this document. The recipient is responsible for obtaining all relevant government regulatory approvals/licenses themselves, and represents and warrants to TD Bank that the recipient's investments in those securities do not violate any law or regulation, including, but not limited to, any relevant foreign exchange regulations and/or overseas investment regulations. The Toronto- Dominion Bank has a representative office in Shanghai, Mumbai and Seoul which should be contacted for any general enquiry related to The Toronto-Dominion Bank or its business. However, neither any of the Toronto-Dominion Bank offshore branches/subsidiaries nor its representative offices are permitted to conduct business within the borders of the PRC, India and South Korea. In locations in Asia where the Bank does not hold licenses to conduct business in financial services, it is not our intention to, and the information contained in this document should not be construed as, conducting any regulated financial activity, including dealing in, or the provision of advice in relation to, any regulated instrument or product. This publication is for general information only, without addressing any particular needs of any individual or entity, and should not be relied upon without obtaining specific advice in the context of specific circumstances. Japan: For Japanese residents, please note that TD Securities is not licensed in Japan and this is being provided to qualified financial institutions ( QFI ) only under a relevant exemption to the Financial Instruments and Exchange Law. New Zealand: The Toronto-Dominion Bank is not a registered bank in New Zealand under the Reserve Bank Act Singapore: This report is distributed in Singapore by The Toronto-Dominion Bank, Singapore Branch, and recipients in Singapore of this report are to contact The Toronto-Dominion Bank, Singapore Branch in respect of any matters arising from, or in connection with, this report. The Toronto-Dominion Bank, Singapore Branch is regulated by the Monetary Authority of Singapore. Where this report is issued or promulgated in Singapore, it is only intended for distribution to a person who is an accredited investor, expert investor or institutional investor as defined in the Securities and Futures Act (Cap. 289) or the Securities and Futures (Prescribed Specific Classes of Investors) Regulations 2005 issued by the Monetary Authority of Singapore. United Kingdom and Europe: This document is prepared, issued or approved for issuance in the UK and Europe by TD Securities Limited in respect of investment business as agent and introducer for TD Bank. The Toronto-Dominion Bank is authorised by the Prudential Regulation Authority and subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. TD Securities Limited is authorised and regulated by the Financial Conduct Authority. Insofar as the document is issued in or to the United Kingdom or Europe, it is intended only to be issued to persons who (i) are persons falling within Article 19(5) ("Investment professional") of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the "Financial Promotion Order"), (ii) are persons falling within Article 49(2)(a) to (d) ("High net worth companies, unincorporated associations, etc.") of the Financial Promotion Order, or (iii) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of any securities may otherwise lawfully be communicated or caused to be communicated. European clients wishing to effect transactions in any security discussed herein should do so through a qualified salesperson of TD Securities Limited. Insofar as the information in this report is issued in the U.K. and Europe, it has been issued with the prior approval of TD Securities Limited. United States: U.S. clients wishing to effect transactions in any security discussed herein must do so through a registered representative of TD Securities (USA) LLC. TD Securities is a trademark of TD Bank and represents TD Securities Inc., TD Securities (USA) LLC and TD Securities Limited and certain investment and corporate banking activities of TD Bank and its subsidiaries. Copyright 2016 The Toronto-Dominion Bank. All rights reserved. Page 10 of 10