The Backlog Cogent Communications Could Not Keep — And the $3.1 Billion It Left Behind

Cogent Communications told investors it had more than 3,400 wavelength orders waiting to be delivered. The backlog, management said, would grow into a $500 million annual business by 2028.

Then they stopped reporting the number.

The class action lawsuit filed in July 2026 puts this sequence into legal language: allegations under Sections 10(b) and 20(a) of the Securities Exchange Act, naming Cogent, CEO David Schaeffer, and CFO Thaddeus Weed. The class period runs from February 29, 2024 through May 1, 2026. The lead-plaintiff deadline is September 21, 2026.

The lawsuit itself is procedural. It's an allegation, not a finding. The interesting work is the financial evidence that preceded the filing and explains what the lawsuit is actually about.

The backlog that emptied

This is not a traditional accounting fraud where revenues are fabricated and booked. The Cogent case has a different shape: a metric was reported, it sounded like a queue of future revenue, and the queue dissolved because customers refused to step forward.

Schaeffer's timeline reads like a slow deflation:

• February 2024: backlog "more than doubled sequentially" to over 2,300 orders
• May 2024: demand "stronger than initially expected"; the $500 million run-rate target reaffirmed
• August 2024: backlog over 2,700
• November 2024: backlog climbed to over 3,400 — though Schaeffer added a qualifier that not all orders would be installed

The reversal began in February 2025, when Q4 2024 results revealed the backlog had fallen from 3,400 to 2,700. Cogent had removed 1,500 "stale" orders. The stock dropped 10% the next day.

By May 2025, Schaeffer admitted on a Q1 2025 call that 90% of the backlog from the prior quarter had fallen out. By February 2026, after Q4 2025 results, he announced Cogent would no longer report specific backlog numbers. He later said, in a March 2026 statement, that the company "probably made a mistake being too granular around both funnel size and exact progression in a specific product."

The complaint calls this a misrepresentation. A more precise reading is that the backlog was real as orders placed — but management treated it as a pipeline of future revenue without disclosing that most customers could walk away. It's the difference between a restaurant reservation list and a guaranteed sales contract. The metric existed. The conclusion investors drew from it was the mismatch.

What the wavelength business was supposed to be

Cogent acquired T-Mobile's wireline business — the former Sprint long-haul network — in May 2023. The deal came with an optical fiber network and an IP transit services agreement with T-Mobile, under which T-Mobile pays Cogent for continued network services. Cogent received $33.3 million from T-Mobile in Q2 2026 alone under this arrangement.

But the growth thesis was wavelength services: long-distance optical connections that businesses buy to move data over their own dedicated fiber paths. The Sprint network was supposed to generate new wavelength orders, and the backlog was the proof point.

The proof point didn't hold.

Wavelength revenue grew from Q1 2025 to $14.8 million in Q2 2026, up 63.8% year-over-year. That sounds strong until you see the denominator: it's growth from an extremely small base. Wavelength customer connections reached 2,445 as of June 2026, up 66.4% from a year ago but still a rounding error against the thousands of orders once claimed. Meanwhile, total customer connections fell 2.4% year-over-year to 115,839.

The balance sheet tells the real story

The backlog number is the hook. The balance sheet is the invoice.

Cogent carries $3.1 billion in total debt against total equity of negative $34 million. That negative equity means accumulated losses have erased every dollar shareholders put in. The debt-to-equity ratio is listed at -4,970% — a figure so extreme it signals the ratio itself has lost its meaning. Total cash stands at $183.7 million.

Revenue is falling. Service revenue was $235.6 million in Q2 2026, down 4.3% year-over-year and 1.5% from Q1. On a trailing-twelve-month basis, revenue growth is negative 4.5%. The company that reported a 10.5% five-year compound annual growth rate is now shrinking.

Operating cash flow for the trailing twelve months is $15.1 million — barely positive, despite revenue of roughly $960 million. That's a 1.6% cash conversion rate on the top line. Free cash flow is negative $142.9 million, driven by $158.1 million in capital expenditures. The company is burning cash to maintain a shrinking network.

Selling the furniture

When revenue declines and debt stands at $3.1 billion, asset sales become the bridge between "this quarter" and "next quarter."

On June 29, 2026, Cogent sold ten data center facilities — in Phoenix, Anaheim, Burbank, Stockton, Atlanta, Chicago, Elkridge, Kansas City, Nashville, and Houston — for $225 million in cash to a newly formed entity sponsored by I Squared Capital. The sale produced a $130.7 million gain on the income statement, which is what drove Q2 2026 GAAP earnings to $1.38 per share.

Without that one-time gain, the quarter was a loss. The GAAP gross margin was 24.5%. The operating margin before the gain was negative. The net income of $66.6 million that impressed headline scanners came from selling real estate, not running a telecommunications business.

Cogent committed to use at least $175 million of the $225 million in proceeds to repurchase debt at a discount. In July 2026, it bought back $118.4 million par value of its 2032 secured notes at $90.071, booking an $11.8 million gain. It's a textbook sequence: sell owned assets, buy back debt cheaply, book a gain, and call it a profitable quarter.

The dividend that followed the backlog

Cogent's dividend was the signal that everything was fine. It was the number investors checked to confirm management believed in its own story.

In late 2025, the quarterly dividend was cut by 98% — from $1.015 per share to $0.02 per share. That's not a pause or a temporary reduction. That is the equivalent of eliminating the payout and keeping only the appearance of continuity. The board approved another $0.02 dividend for Q2 2026. Stock buybacks were paused.

The dividend cut was not announced alongside the lawsuit. It was the economic truth arriving before the legal one.

The stock does the arithmetic

The class action complaint documents the price declines that investors experienced:

• February 27, 2025: down 10% on backlog revelations
• August 7–8, 2025: down 32% over two days, as JPMorgan and RBC seized and sold 2.66 million shares pledged by Schaeffer
• November 2025: a 56% decline over one week, combining Q3 results and the dividend announcement
• February 20, 2026: down 29% when backlog reporting was abandoned
• May 4, 2026: down 29% on Q1 results showing delayed customer acceptance

The stock traded as high as $45.69 over the past 52 weeks. It closed near $9.48 today. The year-to-date decline is 56%. The rolling annual return is negative 75%. Market capitalization has collapsed to roughly $615 million — a fraction of the valuation that priced in a $500 million wavelength run-rate by 2028.

What the lawsuit is and what it isn't

The complaint alleges Sections 10(b) and 20(a) violations — material misrepresentations and omissions that defrauded investors during the class period. Named defendants include Cogent, Schaeffer, and Weed.

This is Level Four on the evidence ladder: a filed allegation in federal court. It has not been adjudicated. Cogent has not publicly issued a formal rebuttal to the complaint as of this writing. The company's actual corrective disclosures — stopping backlog reporting, cutting the dividend, selling data centers, admitting the "mistake" of being too granular — are the substance behind the allegations.

The question isn't whether investors lost money. The question is whether the losses flow from misrepresentation or from a growth narrative that was always optimistic about a metric management now admits it shouldn't have reported.

The shareholder invoice

The math on exposure is straightforward because the market has already done most of the pricing:

• Revenue is declining at 4.5% year-over-year, not growing toward $500 million
• Debt is $3.1 billion against negative $34 million in equity
• Operating cash flow is $15.1 million on $960 million in annual revenue
• Free cash flow is negative $142.9 million
• The company is selling owned data centers to buy back its own debt at a discount
• The dividend was effectively eliminated

This is not a stock that needs a lawsuit to prove something went wrong. The financial statements and the chronology of management's own disclosures have done that work. The lawsuit formalizes the claim that investors deserved to know earlier.

The next settling event is the lead-plaintiff deadline of September 21, 2026, which determines who runs the case. After that, the company's motion to dismiss will test whether the allegations survive judicial scrutiny. But the economic case doesn't require a ruling: the backlog is gone, the dividend is gone, the data centers are being sold, and the balance sheet shows where the story went.

The number isn't proof of fraud. It's the door. And through that door, the financial statements show what happened.