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EarthLink Management Discusses Q2 2012 Results - Earnings Call Transcript

In an effort to provide useful information to investors, our comments today also include non-GAAP financial measures. For details on these measures, including why we use them, and a reconciliation to the most comparable GAAP measures, please refer to our earnings release and the Form 8-K that has been furnished with SEC, both of which are available on our website at earthlink.net.

After Rolla's opening comments, Joe Wetzel, our President and Chief Operating Officer, will provide an integration update; and Brad Ferguson, our Chief Financial Officer, will discuss the quarter's financial results.

Now I'd like to hand things over to Rolla Huff, our Chairman and CEO.

Rolla P. Huff

Thanks, Louis, and thanks to everyone who is joining us this morning. Second quarter was another quarter of progress in our transformation to a growing Business Services company, despite the substantial weight integration activities we're having on every part of the business. We're approaching the home stretch of a big portion of our integration work and we can feel it.

I'll talk more about that in a few minutes. As you saw in this morning's announcements, in the second quarter, we accrued just over $8 million to increase our reserves for certain regulatory audits, primarily being a routine audit currently being conducted by the Universal Service Administration Company or USAC on Deltacom Universal Service Fund contributions dating back 2010. Those familiar with the industry understand that USAC rules can be somewhat subjective and open to different interpretations. While USAC has not yet finished its final audit report, we believe there's a meaningful probability they will determine that Deltacom should have collected and remitted more USF fees from customers on certain legacy products and bundles. We'll continue to work with USAC to help them understand the judgments that Deltacom made when determining how much USF is needed to be collected on certain products. But from an accounting standpoint, we believe taking this charge and disclosing it is the proper course. Accordingly, we're also lowering our guidance to reflect the impact of this change. Overall, we were pleased to see that market interest in our IT services and nationwide connectivity products continues to be very strong. There's no doubt in our minds that our underlying strategy is the right one.

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