10.

Stock-Based Compensation

(a) Stock-Based Compensation Expense

Total stock-based compensation expense in the Company’s consolidated statements of income related to the Company’s long-term incentive award plans was as follows

(in thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Cost of services-compensation	$	1,851	$	399	$	5,353	$	3,540
Selling, general and administrative		5,531		1,703		11,408		7,207
Total	$	7,382	$	2,102	$	16,761	$	10,747

(b) Stock Options

For the

three

months ended

September 30, 2017

and

2016,

stock-based compensation expense related to stock options was approximately

$3.2

million and

$1.2

million, respectively. For the

nine

months ended

September 30, 2017

and

2016,

stock-based compensation expense related to stock options was approximately

$7.1

million and

$5.3

million, respectively.

Presented below is a summary of stock option activity for the

nine

months ended

September 30, 2017 (

in thousands except for weighted average exercise price and weighted average remaining contractual terms

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms		Aggregate Intrinsic Value
Outstanding balance at December 31, 2016		5,191		$	17.35
Granted		984			18.95
Exercised		(174	)		16.09
Forfeitures		(129	)		16.04
Expired		(159	)		22.99
Outstanding balance at September 30, 2017		5,713			17.50		5.25	$	18,601

Expected to vest at September 30, 2017		1,993			16.06		6.39		7,885
Exercisable at September 30, 2017		2,755		$	18.85		3.88	$	7,352

During the

three

months ended

September 30, 2017

and

2016,

the Company issued

40,734

and

211,774

shares, respectively, of the Company’s common stock upon the exercise of outstanding stock options and received proceeds of

$0.8

million and

$2.4

million, respectively. The total intrinsic value of stock options exercised during the

three

months ended

September 30, 2017

and

2016

was

$0.3

million and

$2.2

million, respectively. During the

nine

months ended

September 30, 2017

and

2016,

the Company issued

173,539

and

510,466

shares, respectively, of the Company’s common stock upon the exercise of outstanding stock options and received proceeds of

$2.7

million and

$3.6

million, respectively. The total intrinsic value of stock options exercised during the

nine

months ended

September 30, 2017

and

2016

was

$0.6

million and

$6.3

million, respectively.

As of

September 30, 2017,

there was approximately

$11.9

million of total unrecognized compensation cost related to stock options outstanding, which is expected to be recognized over a weighted average period of

1.9

years.

Excess tax benefit/(deficiency) from the exercise of stock options for the

three

months ended

September 30, 2017

and

2016

was a deficiency of

$0.3

million and a benefit of

$0.5

million, respectively. Excess tax benefit/(deficiency) for the

nine

months ended

September 30, 2017

and

2016

was a deficiency of

$0.2

million and a benefit of

$1.9

million, respectively.

The weighted-average grant date fair value per share of the stock options granted during the

nine

months ended

September 30, 2017

and

2016

was

$7.68

and

$5.49,

respectively. HMS estimated the fair value of each stock option grant on the date of grant using a Black Scholes option pricing model and weighted–average assumptions set forth in the following table:

	Nine Months Ended September 30,
	2017			2016
Expected dividend yield		―			―
Risk-free interest rate		1.74	%		1.20	%
Expected volatility		44.19	%		43.91	%
Expected life (years)		5.00			4.90

For the

three

months ended

September 30, 2017

and

2016

stock-based compensation expense related to restricted stock units was

$4.2

million and

$0.9

million, respectively. For the

nine

months ended

September 30, 2017

and

2016

stock-based compensation expense related to restricted stock units was

$9.7

million and

$5.4

million, respectively.

Presented below is a summary of restricted stock units activity for the

nine

months ended

September 30, 2017

(in thousands, except for weighted average grant date fair value per unit):

	Number of Units			Weighted Average Grant Date Fair Value per Unit
Outstanding balance at December 31, 2016		1,413		$	16.44
Granted		599			18.90
Vesting of restricted stock units, net of units withheld for taxes		(363	)		16.45
Units withheld for taxes		(155	)		16.45
Forfeitures		(47	)		17.16
Outstanding balance at September 30, 2017		1,447		$	17.57

For the

three

months ended

September 30, 2017

and

2016,

HMS granted

59,784

and

8,603

restricted stock units, respectively, with an aggregate fair market value of

$1.0

million and

$0.2

million, respectively. For the

nine

months ended

September 30, 2017

and

2016,

HMS granted

599,441

and

598,531

restricted stock units, respectively, with an aggregate fair market value of

$11.3

million and

$8.4

million, respectively.

As of

September 30, 2017,

1,269,271

restricted stock units remained unvested and there was approximately

$14.2

million of unrecognized compensation cost related to restricted stock units, which is expected to be recognized over a weighted average vesting period of

1.5

years.