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 March 31,
	2017		2016
Cost of services-compensation	$	2,040	$	1,931
Selling, general and administrative		3,346		2,309
Total	$	5,386	$	4,240

(b) Stock Options

Stock-based compensation expense related to stock options was approximately

$2.1

million and

$2.0

million for the

three

months ended

March 31, 2017

and

2016,

respectively.

Presented below is a summary of stock option activity for the

three

months ended

March 31, 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		-			-
Exercised		1			2.71
Forfeitures		(52	)		18.88
Expired		(16	)		24.87
Outstanding balance at March 31, 2017		5,124			17.32		4.76	$	20,130

Expected to vest at March 31, 2017		1,540			15.01		5.52		8,431
Exercisable at March 31, 2017		2,920		$	18.99		4.21	$	8,231

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

three

months ended

March 31, 2016

was

$5.45.

stock options were issued during the

three

months ended

March 31, 2017.

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:

	Three Months Ended March 31,
	2017		2016
Expected dividend yield		―		―
Risk-free interest rate		―		1.20	%
Expected volatility		―		43.89	%
Expected life (years)		―		4.9

During the

three

months ended

March 31, 2017

and

2016,

the Company issued

677

and

9,975

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

$1,836

and

$26,425,

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

three

months ended

March 31, 2017

and

2016

was

$10,903

and

$100,815,

respectively.

As of

March 31, 2017,

there was approximately

$10.2

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

1.11

years.

Excess tax benefit from the exercise of stock options for the

three

months ended

March 31, 2017

and

2016

was

$0.4

million and

$0.01

million, respectively.

Stock-based compensation expense related to restricted stock units was

$3.3

million and

$2.2

million for the

three

months ended

March 31, 2017

and

2016,

respectively.

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

three

months ended

March 31, 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		4			20.33
Vesting of restricted stock units, net of units withheld for taxes		(332	)		16.27
Units withheld for taxes		(140	)		16.27
Forfeitures		(28	)		17.99
Outstanding balance at March 31, 2017		917		$	16.51

As of

March 31, 2017,

761,178

restricted stock units remained unvested and there was approximately

$10.4

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

1.11

years.