How to Escape the Capex Cycle

Heat tracing doesn't make headlines until a refinery catches fire or a pipeline fails in a cold snap. Thermon has spent 70 years selling the systems that prevent exactly that, and quietly building one of the most durable recurring-revenue models in industrial services along the way.

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Industrial process heating is one of those least-discussed industries, until it fails. A February 2007 fire at the Valero McKee Refinery in Sunray, Texas, triggered by ice-damaged piping that had been out of service since the early 1990s, injured four workers, shut down a major refinery for two months, and contributed to gasoline shortages hundreds of miles away in Denver. The U.S. Chemical Safety Board found that the refinery had no effective program to freeze-protect piping and equipment that was out of service or infrequently used.

Plant operators in oil and gas, petrochemicals, and power generation understood that temperature maintenance was critical infrastructure. They knew a single freeze event could mean tens of millions in lost production, cleanup costs, and liability. But in practice, heat tracing showed up on the budget as a maintenance line item, subject to deferral, bidding pressure, and the general tendency to avoid spending on things that have not failed yet.

The result was a market with two uncomfortable features. The first was cyclicality. Heat tracing installations are tightly linked to industrial capital spending decisions. When operators deferred projects, new heat tracing orders fell with them. The second was fragmentation. Thermon, nVent, and Spirax-Sarco competed across a global electric heat tracing market projected to reach $4.34 billion by 2029, large enough to sustain multiple players but not large enough for any one to dominate.

The deeper problem was identity. For most of its history, Thermon carried the label of an oil-and-gas services company. Investors viewed it through the lens of energy capex cycles. Quarterly order intake would spike when refiners went on a spending spree and fall off when they pulled back. With that frame in place, the maintenance and service revenue that ran steadily underneath the business was invisible. As long as the market saw Thermon as an oil-and-gas play, the stock would trade like one.

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Thermon began to reframe what it actually sold. The product was not cable and heaters, it was uptime insurance for facilities where a heating failure carries catastrophic consequences. That reframing had real implications for pricing, customer retention, and revenue stability.

The first lever was the installed base. By the first quarter of fiscal 2025, Thermon had already hit its target of generating at least 70% of revenues from non-oil-and-gas end markets, a goal the company had set for fiscal 2026, reached two years ahead of schedule. Chemical and petrochemical, power generation, food and beverage, rail and transit, data centers, and commercial construction all represented facility classes with permanently installed heat tracing systems that needed ongoing maintenance. Every installation Thermon made became a recurring revenue stream. Management called this OpEx sales, and by fiscal 2026, that category constituted 82% of total revenue.

The second lever was digitization. In September 2020, Thermon launched the Genesis Network, a wireless mesh monitoring system capable of supervising more than 10,000 individual heat trace circuits from a browser interface. A plant engineer could see every circuit's status, pull alarm history, and troubleshoot faults from a tablet rather than dispatching technicians to walk miles of pipe. Customers who adopted Genesis had little reason to look elsewhere for upgrades, audits, or replacement cycles.

The third lever was acquisition. In January 2024, Thermon acquired Vapor Power International, which generated over $50 million in calendar-year 2023 revenue selling electric and gas-fired industrial boilers. Then in October 2024, Thermon added F.A.T.I., an Italian manufacturer of industrial electric heaters founded nearly 80 years earlier, with a product footprint across more than 30 countries and manufacturing in Milan. F.A.T.I. brought European certifications and access to markets where customers preferred local technical support.

Each acquisition extended the maintenance opportunity by the same logic. A new boiler at a pharmaceutical facility was not just a sale, it was the beginning of a service relationship with a customer that had just made a significant capital commitment and needed that commitment to keep running.

Fiscal 2025 revenue reached a record $498.2 million, up from $355.7 million in fiscal 2022, a 40% increase in three years. Gross margin expanded from 39.4% to 44.7% over the same period, and Adjusted EBITDA grew from $58.5 million to $109.2 million. The business was not just getting bigger. It was getting structurally more profitable as the revenue mix shifted toward maintenance work.

Fiscal 2026 extended that trajectory. Full-year revenue hit $536.3 million, up 8%, with gross margin reaching 45.3% and Adjusted EBITDA growing 9% to $119.6 million. Record orders of $550.8 million produced a 1.03x book-to-bill and a backlog of $254.9 million. The Q3 print was the best in company history: $158.2 million in orders at a 24.2% Adjusted EBITDA margin. By year-end, net leverage sat at 0.7x.

Thermon's diversification strategy had effectively neutralized the energy-capex volatility that defined its historical risk profile. When total revenue slipped 5.4% in the first quarter of fiscal 2026 as operators paused capital decisions amid tariff uncertainty, OpEx maintenance revenue held the business steady. The floor never gave way, because 82% of revenue no longer depended on operators making new investment decisions.

In February 2026, CECO Environmental announced it would acquire Thermon in a transaction valued at $2.2 billion, a 26.8% premium to Thermon's prior closing price. Shareholders at both companies approved with more than 99% support, and the transaction closed June 1, 2026. CECO described the combination as its most transformative milestone, validation that what looked like a niche heat tracing company had become a global thermal infrastructure platform with seven decades of roots, a massive installed base, and durable exposure to electrification, decarbonization, and data center demand.

Key Takeaways to consider…

1. The installation is only the beginning of the revenue relationship. Companies that treat the initial sale as the end of the transaction leave behind the most durable and profitable part of the business. The customers who keep a piece of equipment running for decades are worth far more than the customers who bought it.

2. How the market classifies your business determines what it will pay for it. A company doing identical work can trade at a discount or a premium depending entirely on the frame investors use to evaluate it. Accumulating evidence that forces a reclassification is a legitimate strategic objective, not just a communications exercise.

3. The businesses most insulated from economic cycles are the ones that have made themselves part of their customers' cost of failure, not their cost of growth. When your product is what prevents a catastrophic shutdown, your revenue doesn't move with your customers' capital budgets.

4. Diversification is most valuable when it changes what drives your revenue, not just who your customers are. Selling to more industries while remaining dependent on the same capex decisions doesn't reduce volatility. Shifting from project revenue to maintenance revenue does.

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$2.2 billion — Paid by CECO Environmental to acquire Thermon earlier this year

$536.3 million — Record fiscal 2026 full-year revenue

$119.6 million — Fiscal 2026 Adjusted EBITDA

$254.9 million — Backlog end of March 2026

45.3% — Fiscal 2026 gross margin

40% — Revenue growth from fiscal 2022 to fiscal 2025 ($355.7M to $498.2M)

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