Performing in-line variable substitution for path in ArcGIS ModelBuilder?

I am having difficulties in finding a way to use the input path and set is as the output path for a simple Copy Features tool. I use the substitution by the workspace but it outputs the results into the default ArcGIS folder.

I am not sure how to set the workspace to hold the path of the input feature class. As the input feature class is a parameter, I cannot use a hardcoded path. Please see below: