Stock-Based Compensation

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

(a) Long-Term Incentive Award Plans

The Company grants stock options and restricted stock units to HMS employees and non-employee directors of the Company under the HMS Holdings Corp. 2019 Omnibus Incentive Plan (the “2019 Omnibus Plan”), as approved by the Company’s shareholders on May 22, 2019. The 2019 Omnibus Plan replaces and supersedes the HMS Holdings Corp. 2016 Omnibus Incentive Plan.

(b) Stock-Based Compensation Expense

Total stock-based compensation expense in the Company’s unaudited 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,
	2020		2019		2020		2019
Cost of services-compensation	$	922	$	982	$	5,897	$	7,825
Selling, general and administrative	2,211		1,952		15,186		10,890
Total	$	3,133	$	2,934	$	21,083	$	18,715

For the three months ended September 30, 2020 and 2019, stock-based compensation expense related to stock options was approximately $1.0 million and $0.9 million, respectively. For the nine months ended September 30, 2020 and 2019, stock-based compensation expense related to stock options was approximately $8.0 million and $7.8 million, respectively.

Presented below is a summary of stock option activity for the nine months ended September 30, 2020 (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, 2019	2,411	$	23.43
Granted	1,073	27.47
Exercised	(120)	17.88
Forfeitures	(47)	28.06
Expired	(6)	29.24
Outstanding balance at September 30, 2020	3,311	$	24.88	7.51	$	9,564
Expected to vest at September 30, 2020	1,303	$	28.85	8.92	$	832
Exercisable at September 30, 2020	1,579	$	20.69	6.04	$	8,376

During the three months ended September 30, 2020 and 2019, the Company received proceeds of $0.5 million and $12.2 million, respectively, for the issuance of 28,402 and 740,748 shares of common stock upon the exercise of outstanding stock options, respectively. The total intrinsic value of stock options exercised during the three months ended September 30, 2020 and 2019 was $0.3 million and $16.0 million, respectively. During the nine months ended September 30, 2020 and 2019, the Company received proceeds of $2.1 million and $39.2 million, respectively, for the issuance of 119,991 and 2,427,156 shares of common stock upon the exercise of outstanding stock options, respectively. The total intrinsic value of stock options exercised during the nine months ended September 30, 2020 and 2019 was $1.2 million and $45.5 million, respectively.

As of September 30, 2020, there was approximately $5.6 million of total unrecognized compensation cost related to stock options outstanding, which is expected to be recognized over a weighted average period of 1.2 years.

The weighted-average grant date fair value per share of the stock options granted during the nine months ended September 30, 2020 and 2019 was $9.06 and $13.87, 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,
	2020		2019
Expected dividend yield	0	%	0	%
Risk-free interest rate	1.1	%	2.5	%
Expected volatility	41.1	%	40.9	%
Expected life (years)	6.3		6.4

The total tax benefits recognized on stock-based compensation related to stock options for the nine months ended September 30, 2020 and 2019 was $3.2 million and $16.1 million, respectively.

(d) Restricted Stock Units

For the three months ended September 30, 2020 and 2019, stock-based compensation expense related to restricted stock units was approximately $2.1 million and $1.9 million, respectively. For the nine months ended September 30, 2020 and 2019, stock-based compensation expense related to restricted stock units was approximately $13.1 million and $10.9 million, respectively.

Presented below is a summary of restricted stock units activity for the nine months ended September 30, 2020 (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, 2019	1,239	$	21.37
Granted	747	24.22
Vesting of restricted stock units, net of units withheld for taxes	(321)	23.47
Units withheld for taxes	(147)	23.47
Forfeitures	(63)	24.41
Outstanding balance at September 30, 2020	1,455	$	25.41

For the three months ended September 30, 2020 and 2019, HMS granted 7,538 and 12,687 restricted stock units, respectively, with an aggregate fair market value of $0.2 million and $0.5 million, respectively. For the nine months ended September 30, 2020 and 2019, HMS granted 746,502 and 474,520 restricted stock units, respectively, with an aggregate fair market value of $18.1 million and $16.2 million, respectively.

As of September 30, 2020, 1,147,469 restricted stock units remained unvested and there was approximately $13.3 million of unrecognized compensation cost related to restricted stock units, which is expected to be recognized over a weighted average vesting period of 1.1 years.